SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): December 1, 1996
INFRASTRUCTURE INTERNATIONAL, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
0-6456
------------------------
(Commission File Number)
Nevada 87-0287034
- ------------------------------ ---------------------------------
(State or other jurisdiction
of incorporation) (IRS Employer Identification No.)
ONE WORLD TRADE CENTER, SUITE 7865, NEW YORK, NEW YORK 10048
------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 938-0574
1787 East Fort Union Blvd., Suite 106, Salt Lake City, Utah 84121
-----------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
ITEM 1. CHANGES IN CONTROL OF REGISTRANT
On December 1, 1996, Infrastructure International, Inc. (the "Registrant")
consummated an exchange (the "Exchange") of securities with the shareholders of
Guang Hui Highway Project Company Limited ("Guang Hui") pursuant to which
control of the Registrant shifted to the principal shareholders (the "Principal
Shareholders") of Guang Hui. New Eagle Infrastructure Ltd., an entity controlled
100% by Natural Way Technologies, Inc. received 5,100,000 shares of common
stock, representing 52.7% of the outstanding common stock, and 100,000 shares of
preferred stock, representing 100% of the outstanding Series B Preferred Stock,
of the Registrant pursuant to the Exchange. New Silver Eagle Holdings Ltd., an
entity controlled 34% by Yiu Yat Hung, 33% by Yiu Yat On and 33% by other
members of the family of Yiu Yat Hung, received 1,000,000 shares of common
stock, representing 10.3% of the outstanding common stock, pursuant to the
Exchange. The family of Yiu Yat Hung, through ownership in Natural Way
Technologies controls all of the shares held by New Eagle Infrastructure Ltd. in
addition to the shares held by New Silver Eagle Holdings Ltd. Following the
Exchange, the Principal Shareholders, collectively, own approximately 63.0% of
the post-Exchange common stock and 100% of the post-Exchange Series B Preferred
Stock of the Registrant. All of such shares were issued in exchange for stock of
Guang Hui held by the Principal Shareholders, as well as shares held by other
former shareholders of Guang Hui, and representing an aggregate of 100% of the
outstanding stock of Guang Hui at the time of Exchange.
The preferred stock issued pursuant to the Exchange entitles the holders
thereof, as a group, to 30% voting control of the Registrant. Accordingly, the
aggregate voting control held by the family of Yiu Yat Hung, including both the
common stock and preferred stock issued in the Exchange, is approximately 74.1%.
Pursuant to the terms of the Exchange, Messrs. Yiu Yat Hung, Yiu Yat On, Ma
Ding Jie and Jin Hui Juan were elected to the board of directors of the
Registrant, each of whom were nominees designated by Guang Hui, and each of the
prior directors of the Registrant resigned.
To the knowledge of the Registrant, there are no arrangements or
understandings, the operations of which may result in a further change in
control of the Registrant.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On December 1, 1996, the Registrant consummated the acquisition of 100% of
the common stock of Guang Hui Highway Project Company Limited pursuant to the
Exchange described in Item 1 above. The Registrant issued an aggregate of
8,430,000 shares of common stock and 100,000 shares of preferred stock in
exchange for the stock of Guang Hui. The amount of consideration given by the
Registrant pursuant to the Exchange was determined by arms-length negotiations.
Prior to the Exchange, no material relationships existed between Guang Hui or
any of the Principal Shareholders and the Registrant, its affiliates, any
officer or director of the Registrant or any associate of any such persons.
Guang Hui, a British Virgin Island company formed on March 5, 1996,
operating through an 80%-owned subsidiary in the People's Republic of China (the
"PRC"), is engaged in the development and operation of a 72 kilometer four-lane
toll road (the "Jin Long Highway") in Huizhou, Guangdong Province, the PRC. An
18 kilometer section of the Jin Long Highway began operation in March of 1996
and an 18 kilometer section is scheduled to open by the end of 1997. Upon
completion of the initial 35 kilometer section, development is expected to begin
on the remaining 37 kilometers of the Jin Long Highway. The development and
operation of the Jin Long Highway is being undertaken by a sino-foreign joint
venture, Guanghui Highway Development Company Limited ("GHDC"), which is 80%
owned by the Company and 20% owned by Huizhou Highway Property Development
Company ("HHPD"), a state-owned company incorporated in the PRC. Guang Hui is
generally entitled to 80% of the profits derived from the operation of the Jin
Long Highway for a period of thirty years, subject to certain guaranteed minimum
returns to Guang Hui during the first seven years of operations and subject to
certain additional allocations to HHPD during years seven through seventeen of
operations.
2
<PAGE>
The assets of GHDC and Guang Hui consist principally of the land use rights
relating to, and the portions presently completed or under construction of, the
Jin Long Highway in the PRC which the Registrant anticipates will continue to be
used following the Exchange for the same general purposes of the business of
Guang Hui as described above. The land use rights relating to the Jin Long
Highway expire in August of 2026 at which time the Company's interest in the Jin
Long Highway will terminate.
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
(a) DISMISSAL OF INDEPENDENT ACCOUNTING FIRM
(i) Mantyla, McReynolds & Associates (the "principal
accountants"), the independent accounting firm which audited the
financial statements of the registrant (formerly, React Systems, Inc.)
during fiscal years 1994 and 1995, was dismissed in such capacity on
December 27, 1996.
(ii) None of the principal accountant's reports on the financial
statements of the registrant for either of the past two years has
contained an adverse opinion or a disclaimer of opinion, or was
qualified or modified as to uncertainty, audit scope, or accounting
principles.
(iii) The decision to change accountants was recommended by the
board of directors.
(iv) During the preceding two years and any subsequent interim
period preceding their dismissal, the registrant had no disagreements
with the principal accountants on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of
the principal accountants, would have caused it to make reference to
the subject matter of the disagreements in connection with its report.
(v) None of the kinds of events listed in paragraph (a)(1)(v)(A)
through (D) of Regulation S-K Item 304 occurred during the two most
recent fiscal years and any subsequent interim periods.
(b) ENGAGEMENT OF NEW INDEPENDENT ACCOUNTANTS
On December 27, 1996, the registrant's board of directors
formally engaged Arthur Andersen & Co. as its new principal
accountants (the "new accounting firm") to audit the registrant's
financial statements.
The new accounting firm served as the principal accounting firm
for the registrant's subsidiary, Guang Hui with respect to the
financial statements of such subsidiary for the period from inception
to September 30, 1996. Other than its services in that regard, the
registrant, during the two most recent fiscal years and any subsequent
interim period prior to the engagement of the new accounting firm, did
not consult with the new accounting firm with regard to any of the
matters listed in Regulation S-K Items 304(a)(2)(i) or (ii).
ITEM 5. OTHER EVENTS
In connection with the Exchange, Messrs. Yiu Yat Hung, Yiu Yat On, Ma Ding
Jie and Jin Hui Juan were appointed as directors of the Registrant and Zebin Xu,
Angela Morin, K. Scott Crawford and Karen Pollino resigned as directors of the
Registrant. Finally, each of the current officers of the Registrant agreed to
resign at such time as requested by Guang Hui at which time Yiu Yat Hung will be
appointed as President and Yiu Yat On will be appointed as Vice President and
Treasurer of the Registrant.
3
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
GUANG HUI HIGHWAY PROJECT COMPANY LIMITED
Independent Auditors' Report............................. F-1
Consolidated Statement of Operations for the
Period from March 5, 1996 (date of inception)
to September 30, 1996.................................. F-2
Consolidated Balance Sheet as of September 30, 1996..... F-3
Consolidated Statement of Cash Flows for the
Period from March 5, 1996 (date of inception)
to September 30, 1996............................... F-4
Consolidated Statements of Changes in
Shareholders' Equity for Period from
March 5, 1996 (date of inception) to
September 30, 1996..................................... F-5
Notes to Consolidated Financial Statements............... F-6
(b) PRO FORMA FINANCIAL INFORMATION
Introduction to Combined Pro Forma Information........ F-13
Unaudited Pro Forma Combined Balance Sheet
at September 30, 1996.................................. F-14
Unaudited Pro Forma Combined Statement of
Operations for the nine months ended
September 30, 1996..................................... F-15
Notes to Pro Forma Combined Financial Statements......... F-16
(c) EXHIBITS
2.1 Acquisition Agreement dated December 1, 1996 between
Infrastructure International, Inc. and the shareholders of
Guang Hui Highway Project Company Limited.
10.1 Cooperation Contract dated August 5, 1996
10.2 Supplementary Contract amending Cooperation Contract
10.3 Memorandum amending Cooperation Contract
10.4 Contract of Assurance
10.5 Jinlong Highway Project Construction Turn-key Contract
10.6 Regular Expenses Turn-key Contract
16.1 Letter from Mantyla, McReynolds & Associates re change in
certifying accountant
4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
INFRASTRUCTURE INTERNATIONAL, INC.
Date: January 15, 1997 By: /s/ Yiu Yat Hung
--------------------------------------
Yiu Yat Hung, Chief Executive Officer
5
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Guang Hui Highway Project Company
Limited:
We have audited the accompanying consolidated balance sheet of Guang Hui Highway
Project Company Limited (incorporated in British Virgin Islands; "the Company")
and Subsidiary ("the Group") as of September 30, 1996, and the related
consolidated statements of operations, cash flows and changes in shareholders'
equity for the period from March 5, 1996 (date of incorporation) to September
30, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
Substantially all of the Group's operations are conducted in the People's
Republic of China. Accordingly, the Group is subject to special considerations
and significant risks as described in Note 10.b to accompanying consolidated
financial statements.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Guang Hui Highway
Project Company Limited and Subsidiary as of September 30, 1996, and the results
of their operations and their cash flows for the period from March 5, 1996 (date
of incorporation) to September 30, 1996, in conformity with generally accepted
accounting principles in the United States of America.
/s/ Arthur Andersen & Co.
------------------------------------
Arthur Andersen & Co.
Hong Kong,
December 12, 1996
F-1
<PAGE>
GUANG HUI HIGHWAY PROJECT COMPANY LIMITED AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM MARCH 5, 1996 (DATE OF INCORPORATION)
TO SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Rmb US$
<S> <C> <C>
Revenue from operation of a toll expressway 2,899,057 349,790
Operating-differential subsidies 269,612 32,530
---------- --------
Total revenue 3,168,669 382,320
General and administrative expenses
- -Depreciation (2,528,344) (305,061)
- -Other operating expenses (447,954) (54,048)
---------- --------
Total expenses (2,976,298) (359,109)
---------- ---------
Income before income taxes 192,371 23,211
Income taxes - -
---------- --------
Income before minority interests 192,371 23,211
Minority interests 14,742 1,779
---------- --------
Net income 207,113 24,990
========== ========
</TABLE>
The accompanying notes are an integral part of this consolidated statement of
operation.
- -------------------------------
Translation of amounts from Renminbi ("Rmb") into United States dollars ("US$")
for the convenience of the readers has been made at the noon buying rate in New
York City for cable transfers in foreign currencies as certified for customs
purposes by the Federal Reserve Bank of New York on September 30, 1996 of
US$1.00=Rmb8.288. No representation is made that the Rmb amounts could have
been, or could be, converted into US$ at that rate on September 30, 1996 or at
any other certain rate.
F-2
<PAGE>
GUANG HUI HIGHWAY PROJECT COMPANY LIMITED AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Rmb US$
<S> <C> <C>
ASSETS
Current assets:
Cash 332,714 40,144
Receivable from a joint venture partner 269,612 32,530
----------- ----------
Total current assets 602,326 72,674
Property, net 183,419,156 22,130,690
----------- ----------
Total assets 184,021,482 22,203,364
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Loan from a joint venture partner 139,020,986 16,773,767
----------- ----------
Minority interests 19,822,403 2,391,699
----------- ----------
Shareholders' equity:
Common stock, par value US$1;
authorized 50,000 shares; outstanding
2 shares 18 2
Retained earnings 207,113 24,990
----------- ----------
Total shareholders' equity 207,131 24,992
Loan from ultimate holding company 24,970,962 3,012,906
----------- ----------
25,178,093 3,037,898
----------- ----------
Total liabilities, minority interests
and shareholders' equity 184,021,482 22,203,364
=========== ==========
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
- -----------------------------
Translation of amounts from Renminbi ("Rmb") into United States dollars ("US$")
for the convenience of the readers has been made at the noon buying rate in New
York City for cable transfers in foreign currencies as certified for customs
purposes by the Federal Reserve Bank of New York on September 30, 1996 of
US$1.00=Rmb8.288. No representation is made that the Rmb amounts could have
been, or could be, converted into US$ at that rate on September 30, 1996 or at
any other certain rate.
F-3
<PAGE>
GUANG HUI HIGHWAY PROJECT COMPANY LIMITED AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM MARCH 5, 1996 (DATE OF INCORPORATION)
TO SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Rmb US$
<S> <C> <C>
Cash flows from operating activities:
Net income 207,113 24,990
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation 2,528,344 305,061
Minority interests (14,742) (1,779)
Increase in receivable from a joint
venture partner (269,612) (32,530)
------------ -----------
Net cash provided by operating
activities 2,451,103 295,742
------------ -----------
Cash flows from investing activities:
Additions to property (166,110,355) (20,042,273)
------------ -----------
Net cash used in investing activities (166,110,355) (20,042,273)
------------ -----------
Cash flows from financing activities:
Issuance of common stock 18 2
Loan advanced from the ultimate holding
company 24,970,962 3,012,906
Loan advanced from a joint venture partner 139,020,986 16,773,767
------------ -----------
Net cash provided by financing
activities 163,991,966 19,786,675
------------ -----------
Cash, at of the end of period 332,714 40,144
============ ===========
</TABLE>
The accompanying notes are an integral part of this consolidated statement of
cash flows.
- -----------------------------
Translation of amounts from Renminbi ("Rmb") into United States dollars ("US$")
for the convenience of the readers has been made at the noon buying rate in New
York City for cable transfers in foreign currencies as certified for customs
purposes by the Federal Reserve Bank of New York on September 30, 1996 of
US$1.00=Rmb8.288. No representation is made that the Rmb amounts could have
been, or could be, converted into US$ at that rate on September 30, 1996 or at
any other certain rate.
F-4
<PAGE>
GUANG HUI HIGHWAY PROJECT COMPANY LIMITED AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM MARCH 5, 1996 (DATE OF INCORPORATION)
TO SEPTEMBER 30, 1996
Common stock
------------------------
<TABLE>
<CAPTION>
Number of Retained
Shares Amount Earnings
--------- -------- --------
Rmb Rmb
<S> <C> <C> <C>
Balance as of March 5, 1996
(date of incorporation) - - -
Issuance of common stock 2 18 -
Net income - - 207,113
----- ----- -------
Balance as of September 30, 1996 2 18 207,113
===== ===== =======
</TABLE>
The accompanying notes are an integral part of this consolidated
statement of changes in shareholders' equity.
F-5
<PAGE>
GUANG HUI HIGHWAY PROJECT COMPANY LIMITED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Principal Activities
Guang Hui Highway Project Company Limited ("the Company") was incorporated
in the British Virgin Islands on March 5, 1996.
As of September 30, 1996, the Company allotted and issued 2 shares of
common stock to Mr. Yiu Yat Hung and Mr. Yiu Yat On, directors of the
Company.
The Company entered into a joint venture agreement dated August 5, 1996
with Huizhou Highway Property Development Company ("HHPD"; a state-owned
company incorporated in the People's Republic of China ("the PRC") directly
under Huizhou City Roadways Bureau) to develop and operate the "Jin Long
Highway", a 72 kilometers four-lane highway in Huizhou, Guangdong Province,
the PRC. First phase of the investment is to incorporate a sino-foreign
cooperative joint venture in the PRC - Guanghui Highway Development Company
Limited ("GHDC"), which is principally engaged in the development and
operation of 35 kilometers of the "Jin Long Highway" for a period of 30
years from August 1996 to August 2026.
Pursuant to the joint venture agreement, the Company is required to
contribute into GHDC US$9,536,000 (equivalent of approximately
Rmb79,349,000, determined at an exchange rate of US$1.00 = Rmb8.32) in cash
and HHPD is required to contribute into GHDC US$2,384,000 (equivalent of
approximately Rmb19,837,000, determined at an exchange rate of US$1.00 =
Rmb8.32) in the form of part of the "Jin Long Highway" based on a valuation
as of February 29, 1996 as determined by Huizhou Assets Appraisal Office,
an authorized assets valuer in Huizhou, Guangdong Province, the PRC, and
approved by Huizhou State-owned Assets Administration Bureau.
The Company's entitlement to the profit or loss of GHDC is summarized
below:
a. During each of the first seven years of the joint venture period, the
Company will be entitled to the higher of (i) 80% of the net income of
GHDC, or (ii) an amount determined at 22% of the capital contributed
into GHDC by the Company. If the entire net income of GHDC is
insufficient to cover the Company's entitlement, HHPD has agreed to
pay the Company the shortfall as operating-differential subsidies. The
obligations of HHPD in relation to such an agreement are guaranteed by
the Huizhou City Roadways Bureau.
b. During each of the eighth to the seventeenth year, 30% of the net
income of GHDC will be distributed to HHPD until HHPD has received a
total return equal to its capital contribution plus an imputed
interest of 13.5% per annum. The Company will be entitled to receive
80% of t remaining 70% of the net income of GHDC, while HHPD will be
entitled to receive 20% of the remaining 70% of the net income of
GHDC. In case GHDC incurs a loss, the Company will share 80% of the
loss.
c. During each of the seventeenth to the thirtieth year, the Company will
be entitled to 80% of the net income or loss of GHDC, while HHPD will
be entitled to 20% of the net income or loss of GHDC.
F-6
<PAGE>
1. ORGANIZATION AND PRINCIPAL ACTIVITIES (CONTINUED)
The other key provisions of the joint venture agreement include the
followings:
o the Board of Directors of GHDC consists of nine members, with six
designated by the Company and three designated by HHPD.
o upon early termination or liquidation of GHDC, the net assets of GHDC
will be distributed to the Company (80%) and HHPD (20%).
The "Jin Long Highway" comprises the following:
COST OF ACQUISITION/
LENGTH DATE OF COMPLETION OF CONSTRUCTION CONSTRUCTION
35 km 18 kilometres completed on March 1, 1996 Rmb 247,936,000
and the remaining 17 kilometres are
expected to be completed before
December 1997
The "Jin Long Highway" was constructed by HHPD and was valued at
approximately Rmb185,948,000 as of February 29, 1996, by Huizhou Assets
Appraisal Office, an authorized assets valuer in Huizhou, Guangdong
Province, the PRC. Such valuation was approved by Huizhou State-owned
Assets Administration Bureau. HHPD used approximately Rmb19,837,000 of this
value as its capital contribution to GHDC, and the remaining Rmb166,111,000
is as a payable by GHDC to HHPD. During the period ended September 30,
1996, GHDC settled approximately Rmb27,090,000 of its payable to HHPD.
According to a supplementary agreement between the Company and HHPD, HHPD
has undertaken not to demand repayment of the remaining balance of
approximately Rmb139,021,000 until completion of the remaining 17
kilometres of the "Jin Long Highway", which is expected to be before
December 1997. Under a subcontracting agreement dated October 31, 1996,
HHPD has agreed to construct the remaining portion of the "Jin Long
Highway" for a fixed sum of Rmb61,988,000.
GHDC entered into a management agreement dated October 31, 1996 with HHPD,
under which HHPD is responsible to operate the highway and pay all
operating costs in return for a fee determined at 15% of the toll fees
collected for 17 years effectively from August 1996 to August 2013. During
the period ended September 30, 1996, GHDC paid management fees of
approximately Rmb 448,000 to HHPD.
Upon completion of the 35 kilometres of the "Jin Long Highway", the Company
and HHPD will proceed to invest in developing and operating a further 37
kilometres of the "Jin Long Highway" with total investment cost estimated
to be approximately Rmb312,064,000.
F-7
<PAGE>
1. ORGANIZATION AND PRINCIPAL ACTIVITIES (CONTINUED)
On December 1, 1996, Mr. Yiu Yat Hung and Mr. Yiu Yat On, the then
shareholders of the Company, entered into an agreement with Infrastructure
International Inc. (formerly known as React Systems Inc.; a company
incorporated in the state of Nevada, United States of America) underwhich
Infrastructure International Inc. acquired a 100% interest in the Company
by issuing to Mr. Yiu Yat Hung and Mr. Yiu Yat On an aggregate of 8,430,000
shares of common stock, par value of US$0.001, and 100,000 shares class B
preferred stock with superior voting right (note: the voting right of these
100,000 shares class B preferred stock will account for 30% of total voting
right of Infrastructure International Inc. on all corporate matters).
2. Subsidiary
Details of the Company's subsidiary (which together with the Company are
collectively referred to as the "Group") as of September 30, 1996 were as
follows:
<TABLE>
<CAPTION>
Percentage of
Place of equity interest
Name incorporation held directly
----------------------------- --------------------- ---------------
<S> <C> <C>
Guanghui Highway Development The People's Republic 80%
Company Limited of China
</TABLE>
3. Summary of Significant Accounting Policies
a. Basis of consolidation
The consolidated financial statements include the accounts of the
Company and its subsidiary. All material intra-group balances and
transactions have been eliminated on consolidation.
b. Revenue
Revenue from operation of a toll highway comprises toll fees received
from the operation of the highway less business tax levied at 5% of
the toll fees received, and is recognized when the services are
rendered. Operating-differential subsidies represents the recovery
from HHPD when the Company's net income is below the guaranteed
minimum as described in Note 1.
F-8
<PAGE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
c. Income taxes
The Group accounts for income tax under the provisions of Statement of
Financial Accounting Standards No. 109, which requires recognition of
deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial
statements or tax returns. Deferred income taxes are provided using
the liability method. Under the liability method, deferred income
taxes are recognized for all significant temporary differences between
the tax and the financial statements bases of assets and liabilities.
d. Property
Property represents the construction cost of road and structures where
construction is completed and is under operation, and is stated at
cost less accumulated depreciation. Major renewals and betterment
which will result in future economic benefits are capitalized, while
maintenance and repair costs are expensed when incurred. Depreciation
of property for financial reporting purpose is provided using the
straight-line method over 30 years, term of the joint venture period.
e. Construction-in-progress
Construction-in-progress represents road, structures and facilities,
including toll stations and maintenance facilities under construction.
Construction-in-progress is stated at cost which includes construction
and acquisition costs. No depreciation is provided until the
construction work is completed and the related costs are transferred
to property.
f. Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles in the United States of America
requires management to make estimates and assumptions that affect
certain reported amounts and disclosures. Accordingly actual results
could differ from those estimates.
F-9
<PAGE>
4. Income Taxes
The Company and its subsidiary are subject to income taxes on an entity
basis on income arising in or derived from the tax jurisdiction in which
they are domiciled and operate. The Company is incorporated in the British
Virgin Islands under the International Business Companies Act of the
British Virgin Islands and is exempted from the payment of the British
Virgin Islands income taxes. The joint venture enterprise established in
the PRC (GHDC) is subject to PRC income taxes at a rate of 33% (30% state
unified income tax and 3% local income tax). However, upon applications and
approval by the relevant tax authorities, GHDC is exempted from state
unified income tax and local income tax for two years starting from the
first year of profitable operations and then is entitled to a 50% reduction
in state unified income tax for the next three years. As of the date of
this report, GHDC is in the process of applying the issuance of formal tax
exemption certificate.
5. Property
Property comprised:
<TABLE>
<CAPTION>
Rmb US$
<S> <C> <C>
Road and structures 132,196,276 15,950,323
Less: Accumulated depreciation (2,528,344) (305,061)
----------- ----------
129,667,932 15,645,262
Construction-in-progress 53,751,224 6,485,428
----------- ----------
Net book value 183,419,156 22,130,690
=========== ==========
</TABLE>
GHDC holds land use rights to the land occupied by the 35 km of the "Jin
Long Highway" for 30 years commencing from August 1996 to August 2026. As
of the date of this report, GHDC is in the process of applying for the
issuance of the formal land use right certificate. Pursuant to the joint
venture agreement governing the establishment of GHDC, the rights to use
the land and the ownership of the highway will revert to HHPD without
compensation upon expiration of the joint venture in August 2026.
F-10
<PAGE>
6. Loan from ultimate holding company
The amount represented a loan from Infrastructure International Inc. (which
has became the Company's ultimate holding company on December 1, 1996 for
the Company's capital injection into GHDC. The loan is unsecured and
non-interest bearing. Infrastructure International Inc. has agreed not to
demand repayment until the Group is financially capable to do so.
Subsequent to September 30, 1996, on December 10, 1996, the Company
increased its authorized share capital to US$5,000,000 by the creation of
4,950,000 shares of common stock of US$1 each. In this connection, the loan
from the ultimate holding company of approximately Rmb24,971,000 was
capitalized for the issuance of 3,000,000 shares at US$1 par value per
share.
7. Loan from a Joint Venture Partner
The amount represented a loan from HHPD. The loan is unsecured and
non-interest bearing. HHPD has agreed not to demand repayment until
completion of construction of the 35 kilometres of the "Jin Long Highway",
which is expected to be in December 1997.
8. Capital Commitment
As described in Note 1, as of September 30, 1996, the Group had outstanding
capital commitments of approximately Rmb 61,988,000 for the construction of
the "Jin Long Highway".
9. Supplemental Disclosure of Cashflow Information
Non-cash item: Certain property purchased by the Group of approximately
Rmb19,837,000 was resulted from capital contribution by HHPD into GHDC.
10. Operating Risk
a. Strategic relationships
The Group's present operations and construction of the "Jin Long
Highway" in the PRC are conducted through various agreements with HHPD
and Huizhou City Roadways Bureau as described in Note 1. Any changes
in any these strategic relationships would have a material adverse
affect on the revenue and profitability of the Group.
F-11
<PAGE>
10. OPERATING RISK (CONTINUED)
b. Country risk
GHDC operates in the PRC and accordingly is subject to special
considerations and significant risks not typically associated with
investments in equity securities of North American and Western
European companies. These include risks associated with, among others,
the political, economic and legal environments and foreign currency
exchange. GHDC's results may be adversely affected by, among other
things, changes in the political and social conditions in the PRC and
changes in governmental policies with respect to laws and regulations,
inflationary measures, currency conversion and remittance abroad, and
rates and methods of taxation. While the PRC government is expected to
continue its economic reform policies, many of the reforms are new or
experimental and may be refined or changed. It is also possible that a
change in the PRC leadership could lead to changes in economic policy.
A substantial portion of GHDC's revenue will be denominated in
Renminbi. A portion of the future profits of GHDC, if any, will need
to be converted into other currencies to meet foreign currency
obligations such as payment of dividends declared. Both the conversion
of Renminbi into other foreign currencies and the remittance of
foreign currencies abroad are subject to PRC government approvals. No
assurance can be given that GHDC will be able to acquire sufficient
amounts of foreign currencies in the PRC foreign exchange markets in
the future for the payment of dividends.
F-12
<PAGE>
INFRASTRUCTURE INTERNATIONAL, INC.
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information
reflects the December 1, 1996 acquisition by Infrastructure International, Inc.
(the "Company") of 100% of the stock of Guang Hui Highway Project Company
Limited and Subsidiary ("GHH") in exchange for the issuance of 8,430,000 shares
of common stock, 100,000 shares of Series B preferred stock and the infusion of
cash into GHH of $3,000,000. GHH is a British Virgin Island corporation formed
on March 5, 1996. GHH entered into a joint venture agreement dated August 5,
1996 with Huizhou Highway Project Development Company ("HHPD"), a state-owned
company incorporated in the People's Republic of China ("the PRC") directly
under Huizhou City Roadways Bureau, to develop and operate the "Jin Long
Highway", a 72 kilometers four-lane highway in Huizhou, Guangdong Province, the
PRC. The first phase of the investment was to incorporate a sino-foreign
co-operative joint venture in the PRC, Guanghui Highway Development Company
Limited ("GHDC"), which is principally engaged in the development and operation
of 35 kilometers of the "Jin Long Highway" for a period of 30 years from August
1996 to August 2026.
Pursuant to the joint venture agreement, GHH is required to contribute into
GHDC US$9,536,000 in cash and HHPD is required to contribute into GHDC
US$2,384,000 in the form of the "Jin Long Highway" based on a valuation as of
February 29, 1996 as determined by Huizhou Assets Appraisal Office.
The pro forma balance sheet data at September 30, 1996 assumes the
formation of HHPD and acquisition of GHH as of September 30, 1996. The pro forma
statements of operations for the nine months ended September 30, 1996 assumes
the formation of HHPD and acquisition of GHH as of March 5, 1996 (date of
inception).
The historical financial information of GHH as of and for the period ended
September 30, 1996 have been derived from GHH's financial statements included
elsewhere herein and such information with respect to the Company has been
derived from reports filed by the Company on Form 10-QSB for such period. The
pro forma financial information should be read in conjunction with the
accompanying notes thereto and with the financial statements of the Company and
GHH.
The pro forma condensed combined financial information does not purport to
be indicative of the financial position or operating results which would be
achieved had the formation of GHH and the acquisition of GHH been consummated as
of the dates indicated and should not be construed as representative of future
financial position or operating results. In management's opinion, all
adjustments necessary to reflect the effects of the transactions described have
been made.
F-13
<PAGE>
INFRASTRUCTURE INTERNATIONAL, INC.
PRO-FORMA CONDENSED COMBINED BALANCE SHEET
As of September 30, 1996
(Amounts in United States $`000)
(Unaudited)
<TABLE>
<CAPTION>
Infrastructure Guang Hui Highway Proforma Proforma
International, Inc. Project Company Adjustments Combined
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash $ 0 $ 40 $ - $ 40
Recievable from a joint venture partner 0 33 - 33
Loan to subsidiary 3,013 - (3,013)(1) -
----- ------ ------ -------
Total current assets 3,013 73 (3,013) 73
Property, net 0 22,130 - 22,130
-------- ------- ------ ------
Total assets $3,013 $22,203 $(3,013) $22,203
====== ======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Loan from a joint venture partner$ 0 $16,774 $ - $16,774
Loan from shareholders 2 - - 2
Loan from parent - 3,013 (3,013)(1) -
------ ------- ------ -------
Total current liabilities 2 19,787 (3,013) 16,776
Minority interests 0 2,391 - 2,391
-------- ------- ------ -----
Shareholders' equity:
Common stock, par value US$.001;
authorized 25,000,000 shares; pro
forma outstanding 9,680,000 shares 1 1 8(2) 10
Series A Preferred Stock, $.001 par value
3,000 shares issued and outstanding 1 - - 1
Series B Preferred Stock, $.001 par value
100,000 shares outstanding - - 1(2) 1
Additional paid-in capital 3,618 - (9)(2) -
(609)(3) 3,000
Retained earnings (609) 24 609 (3) 24
----- ------- ------ -------
Total shareholders' equity 3,011 25 - 3,036
----- ------- ------ -------
Total liabilities, minority interest
and shareholders' equity $3,013 $22,203 $(3,013) $22,203
====== ======= ======== =======
</TABLE>
The accompanying notes are an integral part of this
proforma condensed combined balance sheet.
F-14
<PAGE>
INFRASTRUCTURE INTERNATIONAL, INC.
PROFORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 1996
(Amounts in United States $`000)
(Unaudited)
<TABLE>
<CAPTION>
Infrastructure Guang Hui Highway Proforma Proforma
International, Inc. ProjectCompany Adjustments Combined
<S> <C> <C> <C> <C>
Revenue from operation of
a toll expressway $ 0 $ 350 $ - $ 350
Operating-differential subsidies 0 32 - 32
------- ----- ---- -----
Total revenue 0 382 - 382
General and administrative expenses
Depreciation - (305) - (305)
Other operating expenses (21) (54) - (75)
------- ----- ---- ----
Total expenses (21) (359) - (380)
------- ------ ----- -----
Income before income taxes (21) 23 - 2
Income taxes - - - -
------- ----- ----- -----
Income before minority interests (21) 23 - 2
Minority interests - 2 - 2
------- ----- ----- -----
Net income $ (21) $ 25 $ - $ 4
======== ===== ===== =====
</TABLE>
The accompanying notes are an integral part of this proforma
condensed combined statement of operations.
F-15
<PAGE>
INFRASTRUCTURE INTERNATIONAL, INC.
NOTES TO CONDENSED COMBINED FINANCIAL INFORMATION
The proforma adjustments were made under the assumption that the proforma
combined financial information has been prepared using the purchase method as a
reverse acquisition whereby the company issuing its shares to effect a business
combination is determined to be the acquiree in the business combination.
Accordingly, Guang Hui Highway Project Company Limited is deemed to be the
acquirer and the assets of the company deemed to be acquired, Infrastructure
International, Inc., are required to be adjusted to fair value on acquisition.
As the only asset of Infrastructure International was cash, no fair value
adjustments are required.
1. To eliminate intercompany recievable/payable.
2. To record the issue of 8,430,000 shares of common stock and 100,000 shares
of Series B preferred stock in exchange for the entire issued share
capital of Guang Hui Highway Project Company Limited.
3. To eliminate the deficit of Infrastructure International, Inc.
F-16
ACQUISITION AGREEMENT
AGREEMENT, dated as of 1st day of December, 1996 but effective as the close
of business on December 1, 1996, by and between INFRASTRUCTURE INTERNATIONAL,
INC., a Nevada corporation (hereinafter called "III"), and the shareholders of
GUANG HUI HIGHWAY PROJECT COMPANY LIMITED (hereinafter called "Shareholders").
RECITALS
WHEREAS, the Shareholders own or control in their respective capacities the
right to sell, transfer and exchange all of the issued and outstanding shares of
the capital stock of GUANG HUI HIGHWAY PROJECT COMPANY LIMITED (hereinafter
referred to as "G H Highway Group") incorporated as a British Virgin Islands
Corporation and its shareholdings in a subsidiary in the People's Republic of
China (hereinafter collectively called the "G H Highway Group");
WHEREAS, III wishes to acquire all of the issued and outstanding capital
stock of the G H Highway in exchange for 8,430,000 shares of Common Stock, par
value $0.001 per share of III (hereinafter referred to as the "III Common
Stock"), representing approximately 87% of the issued and outstanding shares of
III following the exchange, and 100,000 shares of Class B Preferred Stock with
superior voting right always equivalent to 30% of total vote (hereinafter called
"Class B Preferred Stock") on all corporate matters of III, and the infusion
into G H Highway Group of cash of US$3,000,000 (Three Million United States
Dollars);
WHEREAS, the Shareholders wish to exchange their shares in the G H Highway
Group for shares of the III Common Stock and Class B Preferred Stock and the
infusion into G H Highway Group of cash in the amount of US$3,000,000
(hereinafter called "Consideration").
NOW THEREFORE, in consideration of the premises herein contained and the
mutual covenants hereinafter set forth, the parties hereto covenant and agree as
follows:
-1-
<PAGE>
1. EXCHANGE OF SECURITIES. Subject to the terms and conditions hereinafter set
forth, at the time of closing referred to in Section 6 hereof (hereinafter
called the "Closing Date"), III will issue and deliver, to the
Shareholders, 8,430,000 shares of III Common Stock and 100,000 shares of
Class B Preferred Stock in exchange for which the Shareholders will
deliver, or cause to be delivered to III, all of the issued and outstanding
capital stock of the G H Highway Group. Immediately following this
exchange, the Shareholders will own approximately 87% of the resulting
issued and outstanding Common Stock of III. As additional consideration,
III will issue to the Shareholders 100,000 shares of Class B Preferred
Stock and infuse into the G H Highway Group as a capital contribution the
sum of US$3,000,000. The Class B Preferred Stock has a voting right always
equivalent to 30% of the total vote on all corporate matters of III.
2. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS. The Shareholders
represent and warrant to III, all of which representations and warranties
shall be true as of the Closing Date, and shall survive the Closing Date
for a period of two years therefrom, except as to the representations and
warranties set forth in subsection (g) of this paragraph which shall
survive for a period of three years from the Closing Date, and those set
forth in subsection (h) of this paragraph which shall survive for either a
period of twelve months from the Closing Date, or from the date when the
accounts receivable become due and payable, whichever is later, that:
a. The G H Highway Group and each of its subsidiaries are corporations
duly organized, validly existing, and in good standing under the laws
of the jurisdiction of their incorporation and each has the corporate
powers to own their property and carry on their businesses as and
where it is now being conducted. Certified copies of the Memorandum &
Articles of Association and the Bylaws for the G H Highway Group and
each of its subsidiaries are attached hereto as Exhibit 1. These
documents are true and correct copies of the Memorandum and Articles
of Association and Bylaws of each company and include all of the
amendments thereto to and including the Closing Date.
-2-
<PAGE>
b. The authorized share capital of the G H Highway Group is $50,000
consisting of one class and one series of shares divided into 50,000
shares of $1 par value each, of which two shares are presently issued
and outstanding.
c. The Shareholders have the full legal right and power to exchange their
shares of the capital stock of the G H Highway Group upon the terms of
this Agreement, and all such shares have been duly authorized, validly
issued and are free and clear of any and all liens or other
encumbrances.
d. The consolidated financial statements audited and opined to by Arthur
Andersen & Co., Certified Public Accountants, at and for the year
ended September 30, 1996, attached hereto as Exhibit 2, constitute
true and correct statements as of such date of the financial condition
of the G H Highway Group and of its assets, liabilities and income,
prepared in accordance with generally accepted accounting principles
of the United States consistently applied, and that from September 30,
1996, until the Closing Date, no dividends or distributions of
capital, surplus, or profits have been, or will be paid or declared by
any member of the G H Highway Group in redemption of its outstanding
shares other than in the ordinary course of business, and no
additional debt or equity securities have been issued by any member of
the G H Highway Group, nor have any agreements or commitments been
entered into for the issuance of any such securities.
e. Since September 30, 1996, no member of the G H Highway Group has
engaged in any transaction other than transactions in the normal
course of the operation of their business, except as specifically
authorized by III in writing.
f. No member of the G H Highway Group is involved in any pending or
threatened litigation which could materially adversely affect its
financial condition as shown on the balance sheet(s) as of September
30, 1996 (Exhibit 2 hereto), which has not been provided for on such
balance sheet(s), referred to in such balance sheet(s) or disclosed to
III in writing.
-3-
<PAGE>
g. Each member of the G H Highway Group has, and will have as of the
Closing Date, good and marketable title to all of its property and
assets as shown on Exhibit 2 hereto, free and clear of any and all
liens, encumbrances or restrictions, except as shown on Exhibit 2
hereto, and except for taxes and assessments due and payable after the
Closing Date and easements or minor restrictions with respect to its
real property which do not materially affect either the present value
or use of such real property.
h. The inventories, if any, of the G H Highway Group as reflected in
Exhibit 2, and as specifically set forth in separate schedules dated
as of September 30, 1996, and attached hereto as Exhibit 3, are valued
at the lower of cost or net realizable value.
i. The accounts receivable of the G H Highway Group reflected in Exhibit
2, and as specifically set forth in separate schedules attached hereto
at Exhibit 4, which are due and payable on or before the Closing Date
shall be valid and collectible pursuant to their terms, and can
reasonably be anticipated to be paid within twelve months after the
Closing Date, or after the date when the accounts receivable become
due and payable.
j. In connection with their acquisition of shares of III, each
Shareholder represents and warrants to III the following:
(i) Each Shareholder has such knowledge and experience in financial
and business matters so that the Shareholder is capable of
evaluating the merits and risks of an investment in III.
(ii) The III Common Stock is being acquired for the account of the
individual Shareholder for investment only, and not with a view
to, or for resale in connection with, any distribution of the III
Common Stock within the meaning of the Securities Act of 1933, as
amended (the "Securities Act").
(iii)Each Shareholder acknowledges and agrees that the shares of III
Common Stock have not been registered under the Securities Act,
-4-
<PAGE>
or the laws of any other jurisdiction according, under U.S. law,
the III Common Stock cannot be sold or transferred by the
Shareholder, unless the Common Stock is subsequently registered
under applicable law or an exemption from registration is
available. However, III is not required to register or assist in
the registration of any III Common Stock, or to make any
exemption from registration available. Each Shareholder further
acknowledges and agrees that the share certificates evidencing
the III Common Stock will bear a legend substantially in the
following terms:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE "REGISTERED
SECURITIES" WITHIN THE MEANING OF THE SECURITIES ACT OF 1933. AS
AMENDED, AND RULE 144 PROMULGATED THEREUNDER. THE SECURITIES MAY
NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 AS
AMENDED, OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT
THE SALE OR TRANSFER OF THE SECURITIES IS EXEMPT FROM
REGISTRATION UNDER SAID ACT.
3. REPRESENTATIONS AND WARRANTIES OF III. III through its duly authorized
representative represents and warrants to the Shareholders, all of which
representations and warranties shall be true at the Closing Date, and shall
survive the Closing Date for a period of three years therefrom, that:
a. III is a corporation duly organized and validly existing and in good
standing under the laws of the State of Nevada and has the corporate
power to own its properties and carry on its business as it is now
being conducted, has authorized capital stock consisting of 50,000,000
shares consisting of 25,000,000 common shares $0.001 par value per
share, of which 1,250,000 shares are presently issued and outstanding,
and 25,000,000 share of preferred stock, $0.001 par value per share,
of which 3,000 shares are presently issued and outstanding. No other
debt or equity securities of III are issued or outstanding as of the
date hereof, and there does not now exist nor will there exist at the
-5-
<PAGE>
Closing Date any agreement or commitment to issue any such securities.
True and correct copies of the Articles of Incorporation and Bylaws of
III, as amended through the date hereof, are attached hereto as
Exhibit 5, and no amendment shall occur through the Closing Date
except as provided for by this agreement.
b. III has the corporate power to execute and perform this Agreement and
to deliver the shares required to be delivered to the Shareholders
hereunder.
c. The execution and delivery of this Agreement and the issuance of the
shares required hereunder, will have been duly authorized by all
necessary corporate action, and neither the execution nor the delivery
of this Agreement, nor the issuance of the shares nor the performance,
observance, or compliance with the terms and provisions of this
Agreement, will violate any provision of law, any order of any court
or other governmental agency, the Certificate of Incorporation or
Bylaws of III nor any indenture, agreement or other instrument to
which III is a party, or by which III is bound, or by which any of its
property is bound.
d. The shares of III Common Stock deliverable hereunder will, upon
delivery in accordance with the terms hereof, be duly authorized,
validly issued, fully paid and nonassessable, and will be free and
clear of any lien, claim or other encumbrance.
e. The financial statements audited by Mantyla, McReynolds & Associates,
Ltd., Certified Public Accountants, at and for the year ended December
31, 1995 (The "III Financial Statements"), attached hereto as Exhibit
6, constitute true and correct statements as of such date of the
financial condition of III and of its assets, liabilities and income,
prepared in accordance with generally accepted accounting principals
of the United States consistently applied, and that from December 31,
1995, until the Closing Date, no dividends or distributions of capital
, surplus, or profits will be paid or declared by III in redemption of
its outstanding shares or otherwise.
-6-
<PAGE>
f. Since December 31, 1995, III has not engaged in; and will not engage
in, any transaction, other than transactions in the normal course of
the operations of its business, except as specifically authorized by
the Shareholders in writing.
g. III is not involved in any pending or threatened litigation which
would materially adversely affect its financial condition as shown by
the balance sheet of December 31, 1995 (Exhibit 6 hereto), which has
not been provided for on such balance sheet of referred to in such
balance sheet or described on Exhibit 7 attached hereto.
h. No representations, warranties or covenants of III in this Agreement
or any certificate or other document furnished or to be furnished by
III pursuant to this Agreement, contain, or will contain, a material
misstatement of fact, or omit, or will omit, a material fact necessary
to make the statements contained herein, or therein, not misleading.
None of the officers or directors of III has knowledge of any act or
matter, which may have a material adverse effect upon III or the
securities of III.
i. As of the date hereof, the shares of outstanding common stock of III
are, and as of the Closing Date, such shares will be, registered under
Section 13 or 15 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Copies of all reports (the "Reports") filed by
III pursuant to Section 13 or 15 of the Exchange Act and the rules and
regulations promulgated thereunder. The Reports (i) do not contain any
untrue statement of a material fact, and (ii) do not omit to state any
material fact necessary to make the statements therein, in light of
the circumstances under which they were made, misleading.
j. Except as previously described to the Shareholders in writing, III has
no material liabilities of any nature except:
(i) Liabilities reflected or reserved against in the III Financial
Statements attached hereto; and
-7-
<PAGE>
(ii) Liabilities incurred by III subsequent to the date of the latest
statement of financial condition submitted as part of the III
Financial Statements in the ordinary course of business and
consistent with past practice and disclosed in writing to the
Shareholders. As used in this Section, "material" means amounts
of $5,000 or more.
k. In connection with its acquisition of the G H Highway Group, III
hereby represents and warrants to the Shareholders the following:
(i) III has such knowledge and experience in financial and business
matters that III is capable of evaluating the merits and risks of
an investment in the G H Highway Group.
(ii) The shares of the G H Highway Group are being acquired for the
account of III for investment and not with a view to, or for,
resale in connection with, any distribution of such shares within
the meaning of the Securities Act.
(iii)III acknowledges and agrees that the shares of the G H Highway
Group are not registered under the Securities Act, or the laws of
any other jurisdiction. The shares of the G H Highway Group
cannot be sold or transferred by III unless they are subsequently
registered under applicable law or an exemption from registration
is available. The Shareholders are not required to register or
assist in the registration of the shares of the G H Highway Group
or to make any exemption from registration available. III further
acknowledges and agrees that the share certificates evidencing
the shares of the G H Highway Group will bear a legend
substantially similar to the legend set forth in Section
2(j)(iii) above.
(iv) The Shareholders shall have received the representation and
guarantee made personally by all members of Board of Directors of
-8-
<PAGE>
III that III has no loss and no liabilities of any kind prior to
or at the Closing Date.
l. Except as previously disclosed to the Shareholders in writing, there
has not been with respect to III since December 31, 1995, nor shall
there be with respect to III through the Closing Date:
(i) Any event, condition or state of facts, which individually or in
the aggregate, has resulted in any known adverse material change
in condition (financial or otherwise), in the assets,
liabilities, prospects or business of III taken as a whole;
(ii) Any declaration, set aside or payment, directly or indirectly, or
a distribution of assets, in the nature of a dividend or a
partial liquidation, pro rata or otherwise;
(iii)Any damage, destruction, loss or other casualty, whether or not
covered by insurance, or any strike, work stoppage, slowdown, or
other labor trouble materially adversely affecting the business
or properties of III considered as a whole.
(iv) Any material change in the method of recordkeeping employed by
III.
(v) Any issuance or sale of any capital stock, bond, debentures,
notes or other securities;
(vi) Any discharge or satisfaction of any lien or encumbrance or the
payment of any obligation or liability, accrued, absolute or
contingent, by such entity in excess of $5,000 in the aggregate
other than liabilities shown in the latest III Financial
Statements and liabilities arising out of obligations incurred
since December 31, 1995, in the ordinary course of business and
disclosed in writing to the Shareholders prior to the execution
of this Agreement;
-9-
<PAGE>
(vii)Any amendment or termination of receipt of notice of any
proposed amendment or termination of any material contract,
franchise, agreement, plan, lease, license or permit to which III
is party or by which it may be bound which materially affects or
will affect the business of III as presently conducted;
(viii)Any mortgage, pledge or subjection of any lien, charge, option
or other encumbrance upon any of the property or assets, tangible
or intangible, of III.
(ix) Any sale, assignment, transfer or agreement to sell, assign or
transfer any of the assets of III, or the making of any
commitment, or the incurring of any material liability, or the
cancellation or compromise or agreement to cancel or compromise
any of the debts or claims of such entity;
(x) Any sale, assignment or transfer, or agreement to sell, assign or
transfer, any trademark or trade name, or application therefore,
or computer software or hardware or any other proprietary
information; or
(xi) Any other material transaction or event other than in the
ordinary course of business.
m. Except as previously disclosed to the Shareholders in writing by III,
III is not party to any of the following:
(i) Collective bargaining agreements involving III and all other
agreements with employees of III as a group;
-10-
<PAGE>
(ii) Bonus, deferred compensation, pension, profit sharing, stock
option, stock purchase, incentive or retirement plans or other
employee benefit arrangement;
(iii)Employment agreements, contracts, or commitments, not terminable
at will without penalty, with or between III and a director,
officer or employee of III;
(iv) Agreements of guarantee or indemnification from III to any person
or entity;
(v) Agreements, contracts or commitments containing any covenant
limiting the right of III to engage in any line of business or
complete with any person or entity;
(vi) Agreements, contracts, or commitments to which III is a party or
by which it is bound evidencing or providing for loans to others;
(vii)Agreements, contracts, or commitments of III relating to
material future payments;
(viii) Agreements, contracts or commitments relating to a merger,
recapitalization, reorganization or the acquisition of assets or
capital stock of any business enterprise;
(ix) Government or government agency or authority approvals, consent,
orders, registrations, authorizations, licenses and permits, and
applications with respect thereto, which are material to the
business and operations of III as currently conducted; or
-11-
<PAGE>
(x) Agreements, contracts or commitments which may require consent by
any other person or entity in connection with the consummation of
the transactions contemplated hereby either to prevent a breach
or to continue the effectiveness hereof.
During the period commencing with the date hereof and ending with
the Closing Date, III will not enter into any such agreement,
contract or commitment, or be subject of any such approval,
consent, order, registration, authorization, license, permit or
application without the prior written consent of the
Shareholders.
n. Subject to the terms and conditions hereof, the Board of Directors of
III has duly approved this Agreement and its execution and the
carrying out of the transactions contemplated herein.
o. Prior to the Closing Date, III shall not negotiate, or directly or
indirectly solicit, or propose to enter into any negotiations which
have as their purpose the sale of the III Common Stock or all, or any
material portion of the assets of, or a tender offer, merger or other
acquisition proposal involving III or its assets, with any person
other than the Shareholders.
p. III hereby agrees, except as otherwise consented to or approved by the
Shareholders in writing, that prior to the Closing Date, III will (i)
operate its business substantially as now operated and only in its
ordinary course, and, to the extent consistent with such operation and
will use its best efforts to preserve its relationships with persons
having business dealings with it, (ii) maintain all of its properties
in customary repair, order the condition, reasonable wear and tear
excepted, (iii) maintain its books, accounts and records in the usual,
regular and ordinary manner, and in accordance with generally accepted
accounting principles of the United States applied on a consistent
basis, (iv) timely file all federal, state and local tax returns and
reports, including, without limitation, income, franchise, excise, ad
valorem, and other taxes with respect to its business and properties
and to pay all taxes or assessments, except for taxes being contested
-12-
<PAGE>
in good faith by appropriate proceedings, as they become due, (v)
maintain insurance upon its properties in accordance with sound
business practice, (vi) comply in all material respect with all laws,
regulations, rules and ordinances applicable to it and to the conduct
of its respective business, and (vii) comply with any contracts,
agreements, commitments, mortgages and similar instruments to which it
is a party.
4. CONDITIONS TO THE OBLIGATIONS OF III. The obligations of III hereunder are
subject to the following conditions:
a. III shall not have discovered any material error or misstatement in
any of the representations or warranties made by the Shareholders who
are parties hereto, and all of the terms and conditions of this
Agreement to be performed and complied with by the Shareholders, on or
prior to the Closing Date, shall have been performed and complied with
as of the Closing Date.
b. III shall have received the opinion of Messrs. Vanderkam & Sanders,
legal counsel for the G H Highway Group, to the effect that (i) each
member of the G H Highway Group is duly organized and validly existing
under the laws of the jurisdiction of its incorporation and has the
power and authority to own their properties and to carry on their
respective businesses wherever the same may be located and operated as
of the Closing Date, and (ii) that this Agreement has been duly
executed, and when delivered by the Shareholders is enforceable in
accordance with its terms, subject to general principles of equity,
and the valid exercise of police power. In rendering any such opinion,
Vanderkam & Sanders may rely on opinions of counsel licensed to
practice law in applicable jurisdictions where Vanderkam & Sanders is
not so licensed.
5. CONDITIONS TO THE OBLIGATIONS OF THE SHAREHOLDERS. The obligations of the
Shareholders hereunder are subject to the following conditions:
a. All representations and warranties of III made herein shall be true
and correct as of the date made and as of the Closing Date, and all
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the terms and conditions of this Agreement to be performed and
complied with by III on, or prior to the Closing Date, shall have been
performed and complied by the Closing Date.
b. There shall have been no substantial adverse change in the conditions,
whether financial, business or otherwise of III from December 31, 1995
to the Closing Date, and between materially adversely affected as the
result of any fire explosion, earthquake, flood, accident, strike,
lockout, taking over of any assets by any governmental authorities,
riot, activities of armed forces, or acts of God or of public enemies.
c. The Shareholders shall have received the opinion of legal counsel for
III, to the effect that (i) III is a corporation duly organized and
validly existing under the laws of the State of Nevada, and that it
has the power to own and operate its properties wherever the same may
be located as of the Closing Date; (ii) that the Agreement has been
duly executed and delivered by III and is enforceable against III in
accordance with its terms; (iii) that the shares to be delivered to
the Shareholders pursuant to the terms of this Agreement have been
validly issued, are fully paid and nonassessable, and (iv) that the
exchange of the shares herein contemplated does not require the
registration of the III Common Shares pursuant to any Federal law
dealing with the issuance, sale, transfer, and/or exchange of
corporate securities.
6. CLOSING DATE. The closing shall take place at 10:00 a.m. Central Standard
Time, on or before December 31, 1996, at such time and place as the parties
hereto shall mutually agree.
7. ACTIONS AT CLOSING. At closing, III and the Shareholders will each deliver,
or cause to be delivered to the other, the securities to be exchanged in
accordance with Section 1 of this Agreement, and each party shall pay any
and all taxes required to be paid in connection with the issuance and
delivery of the securities being assigned by such party. All share
certificates shall be in the name of the party to which the same are
deliverable except the Shareholders shares which shall be duly endorsed or
accompanied by a stock power executed in blank.
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In addition, the following shall occur at Closing:
a. III will deliver to the Shareholders:
(i) Duly certified copies of all corporate resolutions and other
corporate proceedings taken by III to authorize the execution,
delivery and performance of the Agreement; (ii) the opinion of
legal, counsel for III, as provided for in Section 5(c) hereof;
(iii) a Certificate executed by a principal officer of III and
each member of its Board of Directors and the holders of a
majority of its Common Stock, attesting that all of the
representations and warranties of III are true and correct as of
the Closing Date, and that all of the conditions to the
obligations of the Shareholders to be performed by III have been
performed as of the Closing Date; (iv) a Certificate of
Incumbency and Signatures of the officers of III dated as of the
date of this Agreement and again as of the Closing Date; (v) the
resignations of all directors and officers, auditors,
consultants, consults and employees of III, which resignations
shall contain an acknowledgement from each of them that they have
no claims against III for loss of office or otherwise; (vi) all
resignation certificates, statutory books, minute books and
corporate seals of III, all accounts, books and all documents and
papers in connection with the business affairs of III and all
documents of title relating to III assets; (vii) a Certificate of
Good Standing from the State of Nevada as of a recent date.
b. The Shareholders will deliver to III:
(i) The opinion of Vanderkam & Sanders, counsel for the G H Highway
Group, as provided for in Section 4(b) hereof; (ii) certificates
of corporate good standing from the jurisdiction of incorporation
as of a recent date for each member of the G H Highway Group;
(iii) a certificate of the Shareholders, signed by each
Shareholder, that each of the representations and warranties of
the Shareholders is true and correct as of the Closing Date and
that all of the conditions to the obligations of III to be
performed by the Shareholders have been performed as of the
Closing Date.
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c. III will deliver to the G H Highway Group the sum of US$3,000,000.
8. DISSOLUTION OF BOARD OF DIRECTORS. Upon completion of the acquisition, the
existing Board of Directors of III shall be dissolved and a new board shall
be constituted by the G H Highway Group.
9. CONDUCT AND BUSINESS BOARD OF DIRECTORS, ETC. Between the date hereof and
the Closing Date, the members of the G H Highway Group shall conduct their
business in the same manner which it has heretofore been conducted, and the
Shareholders will not permit any member of the G H Highway Group to (i)
enter into any contract, agreement or commitment other than in the ordinary
course of business, or (ii) declare or make any distribution of any kind to
the Shareholders of the G H Highway Group, without first obtaining the
written consent of III. Reciprocal requirements also apply to III.
10. ACCESS TO PROPERTIES, BOOKS AND RECORDS.
a. The Shareholders hereby grant to III and its duly authorized
representatives, during normal business hours between the date hereof
and the Closing Date, the right of full and complete access to the
properties of the G H Highway Group and full opportunity to examine
their books and records.
b. III hereby grants to the Shareholders and their duly authorized
representatives, during normal business hours between the date hereof
and the Closing Date, the right of full and complete access to the
properties of III and full opportunity to examine III's books and
records.
11. CONFIDENTIAL MATTERS.
a. III acknowledges and agrees that during, and as a result of any
discussions, furnishing of documents, III's own investigation, and
otherwise, III shall have access to certain confidential information
(as defined in subparagraph (b)). III hereby agrees for itself and for
each of its officers, directors, employees, agents, representatives
and affiliates:
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(i) to keep secret and confidential, and not to use directly or
indirectly for its own benefit or the benefit of others or to the
detriment of any of the Shareholders or of the G H Highway Group, each
and every item of the Confidential Information, and to use the
Confidential Information solely for the purpose of evaluating the
transactions described herein; (ii) to restrict access to the
Confidential Information to those of its officers, directors,
employees, agents, representatives, consultants, financial advisors
and potential investors who, in the performance of its or their
duties, reasonably require access to the Confidential Information;
(iii) to the best of its/their ability ensure that its officer,
directors, employees, agents, representatives, consultants, financial
advisors, potential investors and potential lenders who obtain access
to Confidential Information maintain the secrecy and confidentiality
thereof, and do not use, directly or indirectly, any such Confidential
Information for its or their own benefit, or the benefit of others, or
disclose any of the Confidential Information to any person or entity
not entitled to the same pursuant to the terms hereof without the
written consent of the Shareholders and G H Highway Group; and (iv) to
use the Confidential Information for no other purpose other than those
specifically authorized hereunder.
b. For purpose of this Agreement, "Confidential Information" shall
include, but not limited to, (i) all prior, subsequent or derivative
drafts hereof, and all information contained or described in the
Exhibits and Schedules attached hereto; (ii) the identity of the
Shareholders and the members of the G H Highway Group; (iii) the
nature, structure and terms of the transactions described herein and
contemplated hereby, and any arrangements related thereto; (iv) all
information pertaining or relating to, or arising out of or in
connection with, any of the foregoing, regardless of the source of
such information, projections, financial margins, or any other
information relating to the transactions described herein or to the
Shareholders or the G H Highway Group, including, but not limited to
customer lists, trade secrets, computer programs, products being
developed, marketed, and distributed by either the Shareholders or G H
Highway Group, engineering, technical and scientific data, tapes,
designs, skills, procedures, formulations, methods, drawings,
facilities, information and know-how, and other confidential
information regarding the Shareholders or the G H Highway Group.
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c. III further agrees that it shall deliver to the Shareholders and its
counsel for prior approval, all proposed press releases, reports or
forms to be filed with the Securities and Exchange Commission, and
other statements; disclosures or reports regarding the transactions or
matters described herein, contemplated hereby, or related hereto.
d. The provisions of this Section and the agreements by III as set forth
in this Section shall apply whether or not the Shareholders actually
acquire III, and accordingly, shall continue to apply after any
termination of the discussions regarding said acquisition for whatever
reason, and shall have no termination or expiration date.
e. III agrees that the disclosure of any of the Confidential Information
would cause immediate and irreparable harm to the Shareholders and to
the G H Highway Group for which damages would not constitute adequate
compensation, and that in the event that III has violated or is about
to violate any provision of this Agreement, any of the Shareholders,
or the G H Highway Group, may bring an action for and obtain
injunctive relief in any court having jurisdiction over III or its
assets without providing a bond or other security. Each Shareholders
and/or the G H Highway Group may recover their attorneys fees and
other costs incurred in the successfully enforcement of this
Agreement, or their rights hereunder, or in recovering damages for a
breach hereof.
12. BROKERAGE FEE. Each party hereto represents that no broker have been
employed in this transaction for which the other party could or will become
liable.
13. COSTS AND EXPENSES. Each party hereto shall pay its own costs and expenses
incident to the preparation of this Agreement and to the consummation of
the transactions contemplated herein.
14. MISCELLANEOUS.
a. This Agreement shall be controlled, construed and enforced in
accordance with the laws of the State of Nevada.
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b. This Agreement shall not be assignable by either party without the
prior written consent of the other.
c. All paragraph headings herein are inserted for convenience only.
d. This Agreement may be executed in multiple identical counterparts,
each of which shall be deemed an original, and which when taken
together, shall constitute one and the same instrument.
e. The Agreement sets forth the entire understanding between the parties
and there are no terms, conditions, representations or warranties
other than those contained herein, and no amendments hereto shall be
valid unless in writing and signed by all parties hereto.
f. This Agreement shall be binding upon and shall inure to the benefit of
the heirs, executors, administrators, successors and assigns of the
Shareholders and upon the successors and assigns of III.
g. All notices, requests, instructions, or other documents to be given
hereunder shall be in writing and sent by registered mail:
If to the Shareholder,
then: To the names and addresses set out on
the signature page under the heading
"Shareholders".
With copies to: Vanderkam & Sanders
Attn: Hank Vanderkam
440 Louisiana, Ste. 475
Houston, Texas 77002
If to III, then: INFRASTRUCTURE INTERNATIONAL, INC.
2440 South Progress Drive
Salt Lake City, UT 84119
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
and III has caused its corporate seal to be affixed hereto as of the date and
year first above written.
"III"
Attest: INFRASTRUCTURE
INTERNATIONAL,
INC.
By: /s/ illegible BY: /s/ illegible
--------------------------- ---------------------------
Secretary Zebin Xu President
"Shareholders"
/s/ illegible
- -----------------------------
Name
Room 5301, Central Plaza
18 Harbour Road
Wanchai, Hong Kong
/s/ illegible
- -----------------------------
Name
Room 5301, Central Plaza
18 Harbour Road
Wanchai, Hong Kong
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IN RELATION TO THE ESTABLISHMENT OF GUANGHUI HIGHWAY DEVELOPMENT COMPANY LIMITED
COOPERATIVE CONTRACT
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(TRANSLATION)
20th December 1996
Huizhou
<PAGE>
TABLE OF CONTENTS
CHAPTER 1 GENERAL PROVISIONS
CHAPTER 2 DEFINITIONS
CHAPTER 3 PARTIES TO THE COOPERATIVE COMPANY
CHAPTER 4 ESTABLISHMENT OF THE COOPERATIVE COMPANY
CHAPTER 5 THE PURPOSE OF COOPERATION AND SCOPE OF BUSINESS
CHAPTER 6 TOTAL INVESTMENT, REGISTERED CAPITAL AND CONDITIONS PRECEDENT
CHAPTER 7 BOARD OF DIRECTORS
CHAPTER 8 MANAGEMENT OFFICE
CHAPTER 9 COOPERATIVE COMPANY TENURE
CHAPTER 10 THE INCOME OF THE COOPERATIVE COMPANY AND ITS ALLOCATION
CHAPTER 11 LABOUR MANAGEMENT
CHAPTER 12 FOREIGN EXCHANGE MANAGEMENT
CHAPTER 13 TAX, FINANCE AND AUDIT
CHAPTER 14 TERMINATION AND LIQUIDATION
CHAPTER 15 OTHERS
<PAGE>
CHAPTER 1 GENERAL PROVISIONS
Pursuant to the stipulation of the relevant laws and regulations of the
People's Republic of China and a Cooperative Contract in relation to the
establishment of Guanghui Highway Development Company Limited (hereinafter
"Cooperative Contract") on 5 August, 1996 by Huizhou Highway Property
Development Limited (hereinafter "Party A") and Guanghui Highway Project Company
Limited (hereinafter "Party B"), the following Articles of Association is
concluded:
CHAPTER 2 DEFINITIONS
Unless specified in this Articles of Association, the definition of the
following terms are as follows:
2.1 "Approving Authority" refers to the national authority or department which
exercises the approving right of the Cooperative Contract and this Articles
of Association in accordance with the laws and regulations of the People's
Republic of China.
2.2 "Cooperative Company" refers to the Company established by both Parties in
this Articles of Association in accordance with the Cooperative Contract
and this Articles of Association.
2.3 "Director" refers to an individual who is assigned by either Parties to
this Articles of Association and work in the Board of Directors of the
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Cooperative Company.
2.4 "Board of Directors" refers to the highest authority of the Cooperative
Company mentioned in Chapter 7 of this Articles of Association.
2.5 "Cooperative Company Tenure" refers to the tenure stipulated in Chapter 9
in this Articles of Association.
2.6 "Effective Date" refers to the effective date of this Articles of
Association and shall be the day on which the following conditions had been
fulfilled:
(1) This Articles of Association has been formally signed by both Parties;
and
(2) this Articles of Association has been approved by the approving
authority.
2.7 "Force Majeure" refers to earthquake, typhoon, fire, flood, war, starving
or other unforeseen events, and their happening and consequences are
unpreventable and unavoidable.
2.8 "Management Staff" refers to the general manager, deputy general manager,
chief accountant and other management staff appointed by the Board of
Directors.
2.9 "Road Sections of the Project" refers to Jinlong Highway, 71.776 kilometers
in total and is divided into two sections:
Section One:
Starting from Shierling, Young's Village (the intersection of Provincial
Expressway Route No. 1914 and National Expressway Route No. 205), through
Gongzhuang, Pingling and ends at Baisha Bridge, Longmen, 44.238 kilometers
in total.
Section Two:
From Yewu Village, Xiaojin Town, Huicheng District, through Donghang,
Liangtian, Taimei, Leigong, ends at Shierling, Boluo County, 27.538
kilometers in total.
The route of the road sections please see Appendix I of the Cooperative
Contract.
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2.10 "Section for initial investment" refers to a section of Jinlong Highway
which is from Baisha Bridge, Longmen, passing through Pingling, to
Gongzhuang, 35 kilometers in total.
2.11 "Toll Booth" refers to Donghang Toll Booth and Pingling Toll Booth on the
road sections of the project or other toll booths agreed to be set up from
time to time by both Parties.
2.12 "Exclusive Operating Rights" refers to the exclusive rights in relation to
the operation, management, maintenance, repair and the collection of toll
fees granted by Government Department in accordance with the laws.
CHAPTER 3 PARTIES TO THE COOPERATIVE COMPANY
3.1 Party A
Name : Huizhou Highway Property Development Company
Place of Registration: Huizhou, Guangdong Province, China
Address : 12, Xidi Road, Huizhou, Guangdong Province, China
Legal Representation : Zhang Jisheng
Fax No. : (0752) 2232425
3.2 Party B
Name : Guanghui Highway Project Company Limited
Place of Registration: British Virgins Island
Address : Suite 5301, Central Plaza, 18 Harbour Road, Wanchai,
Hong Kong.
Legal Representation : Mr. Yiu Yat Hung
Fax No. : (852) 25190969
3.3 Qualifications
On the signing date and effective day of this Articles of Association,
each Party shall represent and guarantee to the other Party that:
(1) That Party is established in accordance with the laws of the places of
its establishment and setting up and shall ensure that its existence is
effective with good reputation;
(2) that Party shall have the rights, power and authorization required to
enter into this Articles of Association, and on the effective date, that
party shall have the rights, power and authorization required to fully
execute all the obligations in this Articles of Association;
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(3) that party has taken all necessary steps to ensure that it has the
right to enter into this Articles of Association and its representative of
that Party, of which signature attached, shall have the right to sign this
Articles of Association with a letter of attorney, this kind of signing
shall have the binding power to that Party.
(4) the signing and execution of this Articles of Association does not
infringe contravene and against the provisions of any rules, laws,
regulations, ordinance, any authorization or approvals from government
authorities, or any agreement or articles that that Party is one of the
signing parties.
(5) There is no litigation, arbitration, or other judicial, administration
or government investigation towards that Party which are pending or known
by that Party and going to happen soon.
(6) Disclosed all information received from the Chinese Government which
may affect the other party to fulfill its obligations of this Articles of
Association; and the disclosure of those information or documents,
representations may affect the willingness of the other party to sign the
document. And also the information that that party has supplied to other
party contains no material misstatement or has not made any information
which leads to misunderstanding.
(7) Disclosed all information received from the Chinese Government which
may affect the other party to fulfill its obligations of this Cooperative
Contract; and the disclosure of those information or documents,
representations may affect the willingness of the other party to sign the
document. And also the information that the party has supplied to other
party contains no material misstatement or has not made any information
which leads to misunderstanding.
CHAPTER 4 ESTABLISHMENT OF THE COOPERATIVE COMPANY
4.1 In accordance with the "Law of Sino-foreign Cooperative Company in the
People's Republic of China" and other relevant laws and regulations, both
Parties agree to establish a sino-foreign Cooperative Company in Huizhou,
Guangdong Province, China according to the provisions stipulated in the
Cooperative Contract and this Articles of Association. The Cooperative
Company shall comply with the laws and regulations in China and its legal
rights and benefits are protected by Chinese laws.
4.2 The name of the Cooperative Company is "Guanghui Highway Development
Company Limited".
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4.3 The Cooperative Company shall register at Huizhou, Guangdong Province,
China. Its registered address shall be No. 12, Xidi Road, Huizhou.
4.4 The establishment date of the Cooperative Company shall be the date on
which the business license of the Cooperative Company is issued.
4.5 The organization form of the Cooperative Company shall be a limited
liability company and the Cooperative Company shall be an enterprise legal
person in the People's Republic of China. The Cooperative Company shall be
liable to the liabilities of the Cooperative Company with all of its
assets. Each Party to shall be liable to the Cooperative Company within the
limit of the capital subscribed by it. Both Parties shall not be liable for
the liabilities (individual or joint liabilities) of the Cooperative
Company directly.
4.6 All activities of the Cooperative Company in the People's Republic of China
shall be governed by the laws and regulations of the People's Republic of
China.
CHAPTER 5 THE PURPOSE OF COOPERATION AND SCOPE OF BUSINESS
5.1 The purpose of the Cooperative Company is in comformity with the principle
of enhancing the economic cooperation and technical exchanges, to reform
the road sections of the project, improve transportation conditions,
traveling safety and smooth traffic on the road sections, enhance the
economic relationship between Huizhou District and Beijing City, Hebei
Province, Henan Province, Hubei Province, Guangzhou, Shenzhen, Heyuan,
Zhuhai Delta, Yuebei, Gannan, Minxi, etc. and to ensure satisfactory
investment benefits of both Parties from the collection of vehicles passing
fees, fees from supplementary facilities and the fees from other aspects by
adopting technical and management experience of international standards.
5.2 The business scope of the Cooperative Company includes: Providing
improvement, management, operation and maintenance services for the "Road
Sections of Initial Investment".
5.3 Unless indicated in the Cooperative Contract, "management and operation"
also include the sole rights of handling vehicles passing fees and
collecting other fees.
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CHAPTER 6 TOTAL INVESTMENT, REGISTERED CAPITAL AND CONDITIONS PRECEDENT
6.1 The total investment of the Cooperative Company shall be RMB560,000,000
(USD67,300,000) while the total initial investment shall be USD29,800,000.
6.2 The registered capital of the Cooperative Company shall be USD11,920,000.
Party A shall contribute USD2,384,000, accounting for 20% of the registered
capital and shall be contributed in assets. Party B shall contribute
USD9,536,000, accounting for 80% of the registered capital.
6.3 Both Parties agree the following conditions as the investment into the
Cooperative Company:
Party A: The rights and assets of Jinlong Highway (from Longmen to Qingxi,
7 kilometers in total), valued at USD5,960,000.
Party B: USD23,840,000 in cash.
6.4 The capital contributed by Party A shall be transferred to the Cooperative
Company on the date of its establishment. The capital contributed by Party
B shall be paid in the following ways after the establishment of the
Cooperative Company and the provisions of the following documents by both
Parties: the first installment of USD5,000,000 shall be paid within a month
while the second installment of USD4,536,000 shall be paid within three
months. The balance of the investment shall be paid according to the
construction progress. Party A shall provide evidence on quality and the
completion time during the examination of the construction work.
(1) The valuation of the contribution by Party A shall be recognized
by the State-owned Assets Administration Bureau and Party B shall
agree the estimated value for Party A made by the above Bureau.
(2) The exclusive rights for not less than 30 years granted by the
relevant government department to both Parties and approval of capital
contribution of that kind of operation right of Party A.
(3) An Agreement on Supervision of the Specified Bank Account signed
by both Parties and the Bank.
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(4) Party B satisfies Party A's ability of the payment of investment
return (see 10.1, 10.2 and 10.3).
6.5 After the contribution of capital by both Parties, an accountant registered
in the People's Republic of China shall be appointed by the Cooperative
Company to verify the capital contributed and a report of it shall be
provided. A capital contribution certificate shall be issued by the Board
of Directors of the Cooperative Company in the name of the Cooperative
Company.
6.6 All assignment shall be approved by the approving authority. After its
approval, the Cooperative Company shall proceed the procedures for changes
from the relevant government authority (other than merge and listing).
6.7 In case any Party to the Cooperative Company assigns all or part of its
cooperation conditions and rights, the other Party to the Cooperative
Company shall have the priority to have the right of assignment (other than
merge and listing).
CHAPTER 7 BOARD OF DIRECTORS
7.1 In addition to its other obligations set forth in this Cooperative
Contract, Party A shall be responsible for the following matters:
(1) Handling of applications for approval, registration, the business
license, tax registration and other matters concerning the establishment of
the Cooperative Company from the relevant departments in China;
(2) Providing conditions of capital contribution and cooperation according
to the stipulation in Article 6 of this Cooperative Contract;
(3) Assisting the worker of Party B and the staff of the Cooperative
Company in applying for the entry visa, working permit and processing their
traveling matters;
(4) Responsible for handling other matters entrusted by the Cooperative
Company.
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7.2 The Board of Directors shall be the highest authority of the Cooperative
Company. It shall have the following rights and authority:
(1) Providing conditions of capital contribution and cooperation according
to the stipulation in Article 6 of the Cooperative Contract;
(2) Responsible for handling other matters entrusted by the Cooperative
Company.
CHAPTER 8 REPRESENTATIONS AND WARRANTIES
8.1 The following represenations and warranties are made by Party A to Party B.
(1) The existing Company is legally established by Party A in Accordance
with the laws in the People's Republic of China. It is a enterprise legal
person in the People's Republic of China which solely bears the
liabilities, bear sole responsibility for its profits or losses and holds
an effective business license for enterprise legal person;
(2) Party A is a Company that have the right and ability to develop,
construct, operate and manage Jinlong Highway in accordance with the laws
in the People's Republic of China and have sufficient right and ability to
conclude this Cooperative Contract with Party B and fulfill all the
provisions stipulated in the Cooperative Contract;
(3) Pursuant to the laws in the People's Republic of China and the
authorization from the relevant government departments, Party A shall have
the exclusive operating right on Jinlong Highway at least for 30 years upon
the effective day of this Cooperative Contract. Party A shall have the
right to use the above exclusive operating right as the capital injected
into the Cooperative Company.
(4) There is no mortgage or in any other forms of pledge on the exclusive
operating right of the road section of initial investment of Jinlong
Highway which is contributed by Party A as capital;
(5) A necessary feasibility study for the reconfiguration and management of
the road sections of Jinlong Highway have been proceeded and all the
approval documents from the government as required have been received.
Party A shall provide Party B with all valid documents of the aforesaid
information before the signing of this Cooperative Contract. Party A shall
be responsible for handling all the applications for approval and
registrations (including but not limited to the procedures proceeded in the
department of foreign exchange management) in order to make this
Cooperative Company valid.
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approval documents from the government as required have been received.
Party A shall provide Party B with all valid documents of the aforesaid
information before the signing of this Cooperative Contract. Party A shall
be responsible for handling all the applications for approval and
registrations (including but not limited to the procedures proceeded in the
department of foreign exchange management) in order to make this
Cooperative Company valid.
CHAPTER 9 BOARD OF DIRECTORS
9.1 The date of registration of the Cooperative Company shall be the date of
the establishment of the Board of Directors of the Cooperative Company.
9.2 The Board of Directors shall be the highest authority of the Cooperative
Company. it shall have the following rights and authority:
(1) To determine the operation and investment plans;
(2) to determine the annual financial budget and accounting proposal;
(3) to determine the increase of the registered capital;
(4) to determine the merge, subdivision, change of the form of the
Coopertive Company and dissolution
(5) to determine the establishment of internal management office;
(6) to employ or dismiss the general manager, deputy general manager and
chief accountant and according to the nomination of the general manager, to
employ or dismiss other management staff and to determine their salaries;
(7) to approve the basic management system (including financial system,
accounting system, personnel management, labour management, etc.);
(8) to amend the Articles of Association;
(9) upon the decision of both Parties, other matters which shall be decided
by the Board of Directors
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9.3 The Board of Directors is composed of 9 directors, of which 3 shall be
appointed by party A, 6 by Party B. The term of office for the directors
shall be 3 years, their term of office may be renewed if continuously
appointed by the relevant party. Upon the expiration of the term of office
of a director of any position of a director is vacated, the original
appointing Party shall appoint any other person at any time or appoint a
new director. The new appointment shall be effective after a written notice
had been sent to the Cooperative Company.
9.4 The Board of Directors shall have one chairman and one vice-chairman. The
chairman of the Board shall be appointed by Party B, and its vice-chairman
by Party A. As the chairman is an extremely important position, Party B has
agreed to consult Party A (about reappointment, time of replacement when
the position is filled.
9.5 The chairman of the Board is the legal representative of the Cooperative
Company, his responsibilities are:
(1) To call and hold the Board meetings;
(2) to issue notice and make preparation to implement all the decisions
made by the Board;
(3) to sign the relevant legal documents on behalf of the Cooperative
Company according to the decisions made by the Board of Directors;
(4) to propose or accept the litigation proceedings on behalf of the
Cooperative Company.
The chairman of the Board shall not, without authorization of the Board of
Directors, solely conduct any behavior which has binding effect to the
Board of Directors or/and the Cooperative Company other than the activities
mentioned before.
Should the chairman be unable to exercise his responsibilities for some
reasons, he shall authorize the vice-chairman to represent him in the
execution of the responsibilities of the chairman temporarily.
9.6 The Board of Directors shall convene at least one regular meeting every
year.
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The meeting shall be called and held by the chairman of the Board. The
first meeting shall be held within 45 days after the issuance of the
business license. The chairman may convene an interim meeting based on a
proposal made by two or more directors and a written notice sent to all
directors of the Board of Directors 10 days in advance.
9.7 The meetings of the Board of Directors shall normally be held at the place
of the Cooperative Company, but may be held at other locations or in other
forms when necessary.
9.8 Should the directors be unable to attend the meeting, the chairman shall
appoint a proxy in writing to represent him. The letter of attorney shall
include the scope of authorization. In case any director cannot attend in
person or appoint a proxy to attend the meeting for him, it shall be deemed
as he forfeits his voting right.
9.9 The quorum for a Board meeting shall consist of three-quarters of the
directors. Should the directors or their proxies be less than the quorum,
the Board meeting shall be postponed by 15 days. At that time, no matter
how many directors are present, there is enough quorum and all the
resolution passed shall be valid, unless the absence of the directors is
due to force majeure.
9.10 The Board meetings with quorum shall exercise all right, power to make
decision or descretion which shall be exercised or are given by the Board
of Directors or generally authorized by and Board of Directors.
9.11 Resolutions on the following issues shall be made only after being passed
by the three quarters of directors or passed unanimously by other proxies
present at the Board meeting:
(1) To amend this Cooperative Contract, Attached Agreement and the Articles
of Association of the Cooperative Company;
(2) to change the legal structure of the Cooperative Company, including the
number of shares of the Cooperative Company and the plan of listing,
choosing and change of the name or trademark of the Cooperative Company;
(3) to determine the increase or decrease of the registered capital of the
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Cooperative Company
(4) to determine the increase of the total investment of the Cooperative
Company;
(5) the Cooperative Company merges with other economic organization or any
other form of reorganization;
(6) to establish branches or subsidiaries or other branch institutions;
(7) to sell, assign or in other forms to handle all or part of the assets,
business or right of the Cooperative Company;
(8) to establish or permitted to established any mortgage, pledge, options
or any other th8ird party interest of the property or assets or any portion
of capital of the Cooperative Company;
(9) to extend, suspend, terminate or dissolve the Cooperative Company;
(10) to determine major investment issues of the Cooperative Company.
9.12 The following issues shall be valid after being passed by more than three
quarters of the directors (including their authorized proxies) present at
the Board meetings (except abstention):
(1) Change the business nature or location, establish, expand or close the
business location of the Cooperative Company;
(2) acquire and merge more than 20% interest of other enterprises,
companies or entities;
(3) purchase or handle the stocks from any other companies or other
securities;
(4) approve and amend the annual business plan, annual or quarterly
financial or accounting report and Auditor's report of the Company, and for
any approved budget, examine and approve any expenditure exceeding 10% of
the expense items;
(5) any capital expenses or investment;
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(6) set up or issue any bonds or convertible bonds, or to receive
provisions or loans by the forms other than normal trading.
(7) any loan exceeding RMB1 million or other currencies equivalent to the
amount;
(8) the Cooperative Company shall provide guaranty or other guaranteed
rights and interests or compensation for the third party benefits;
(9) provide any financing arrangement, including loan and economic
subsidies for any individuals, companies, entities, partnerships or other
economic organizations or legal entities;
(10) formulate or amend any contract provisions of the major suppliers
accounting for 15% or more of the purchasing amount of the Cooperative
Company or the main clients accounting for 15% or more of the sales amount
of the Cooperative Company, or to terminate the existing relationship of
those suppliers or clients;
(11) the Cooperative Company (i) concludes, other than normal business
contracts, a single project contract with a value exceeding RMB2 million or
a entire contract with a value exceeding RMB5 million with any person, or
(ii) concludes a single project contract with a value exceeding RMB500,000
or a entire contract with a value exceeding RMB1 million with any Party of
terminate these two kinds of contracts;
(12) the leasing, sale and purchase, reconstruction and/or operation not
according to the original business purpose of the land use right and real
estate such as the plant.
(13) appoint or dismiss and replace the general manager, deputy general
manager and chief accountant;
(14) appoint or replace the auditor;
(15) formulate and amend the legal provident fund, drawing proposal of
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legal public welfare fund and profit distribution proposal;
(16) approve or alter the accounting method or policy;
(17) for any nature of legal, administrative or arbitrary procedure
(excluding legal procedures for the liabilities due to normal operation of
the Cooperative Company or some extreme situation of the loss of the
Cooperative Company and the Cooperative Parties caused by not taking
actions) proposed by any third party, however, for the second situation,
the chairman and/or general manager of the Company shall inform the Parties
on time of the actions taken.
(18) the Cooperative Company formulate, amend or terminate the retirement
scheme, long-term service, compensation or similar arrangement of the
present or retired management staff or employees, and the incentives or
profit sharing plan of any employees.
9.13 The matters arisen from any Board meetings other than the matters mentioned
in 9.11 and 9.12 are decided by ballot and passed by majority.
9.14 The minutes of Board Meetings are written and filed in Chinese. All minutes
of Board Meetings shall be recorded with the name of the directors
attending the meeting, all resolutions in the meeting and agenda. the
minutes are officially filed until all directors having attended the
meeting have signed. The Board of Directors hall deliver a copy of the
minutes to each member of the Board as soon as possible after the end of
the meeting.
9.15 Each director (including the Chairman) shall only have one vote.
9.16 Except for the part-time senior management staff or part-time employees,
all directors shall serve the Cooperative Company without receiving
remuneration. However, the expenses (including travel expenses, living
expenses and other expenses) arisen from the attendance of Board Meeting by
the directors shall be regards as the expenses of the Cooperative Company
and shall be borne by the Cooperative Company.
CHAPTER 10 MANAGEMENT OFFICE
10.1 The cooperative company shall adopt a "General Manager Responsibility
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System" under the supervision of Board of Directors. The cooperative
company establishes an operation management organization to be responsible
for daily management of the company. The management organization employs
one general manager and, one deputy general manager. After obtaining an
agreement from both cooperative parties, the number of deputy general
manager can be increased.
10.2 The selection of general manager shall be carried out according to Party
B's recommendation. If there is only one deputy general manager, the person
who fills this position shall be recommended by Party A. In case the number
of deputy general manager is over one person, the cooperative two parties
shall negotiate the number of people of each side that should be
recommended. General manager and deputy general manager shall be appointed
by Board of Directors. The tenure of employment lasts for 4 years or shall
be decided by Board of Directors. This procedure is applicable for all the
appointment of general manager and deputy general manager in the future
unless there are any other resolutions made in the Board Meeting.
10.3 The responsibilities of the general manager include implementing all
resolutions in the Board Meeting, organizing and managing the daily
management operation of the cooperative company. The general manager is
entitled to appoint several departmental managers to be responsible for the
departmental duties. The departmental managers shall report to the general
manager. Deputy general manager assists the general manager.
10.4 In case the general manager or the deputy general manger practices graft,
seriously neglects his duty or is deliberately negligent, the general
manager or the deputy general manager can be dismissed and replaced anytime
through a resolution from the Board Meeting.
CHAPTER 11 COOPERATIVE COMPANY TENURE
11.1 The tenure of the cooperative company lasts for 30 years, starting from the
day of the establishment of the cooperative company.
11.2 In case the cooperative two parties agree to extend the tenure of
cooperation, the application for the extension of the cooperative period
shall be submitted to the approval authority six months prior the
expiration of the cooperation period. Party A shall assist to gain the
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approval of application.
CHAPTER 12 THE INCOME OF COOPERATIVE COMPANY AND ITS ALLOCATION
12.1 Regarding the contract of the cooperative company, both parties agree to
allocate the income according to the proportion and methods stated below :
Party A and Party B agree that Party B shall inject 80% of the total share
capital. Party B shall have the priority, after the injection of the
capital, to receive an annual return of 22% on its amount of investment for
the first 7 years. (It will be calculated in installment in accordance with
the actual injection amount and the time of injection into the bank account
of the Cooperative Company). Party A shall pay for the Party B quarterly
(i.e. 31st March, 30th June, 30th September, 31st December of each year).
Both parties agree that for the next 10 years (i.e. from the eighth to the
seventeenth year), after the deduction of 15% regular expenses and taxes, ,
70% of the net revenue will be used for dividend distribution (in
accordance with the ratio 2:8). The dividend will be distributed quarterly
(i.e. at the end of March, June, September, December each year). The
remaining 30% of revenue will be used to pay for the interest of the 20% of
the total capital injected by Party A. The interest rate will be 13.5% per
annum. In case Party A cannot receive all the invested principal and
interest within 10 years, both parties agree that the cooperative company
will continue to repay Party A from the seventeenth year onwards. When
Party A has received all the principal and interest, the total revenue of
the cooperative company, having deducted the 15% regular expenses
(including the wages and welfare of the staff at toll booths, maintenance
fee and so on), the cooperative company will allocate it to parties A and B
in accordance with the ratio of their investment.
12.2 Both Parties A and Party B agree to act in accordance with the provisions
of the State Administration Exchange Control. Party B's injection should be
in United States Dollars. The "Cooperative Company" shall be responsible
for exchanging the recoup return and profit into United States Dollars and
remitting to the bank account stipulated by Party B. The exchange risk
shall be borne by the cooperative company. Party A agree to pay Party B the
investment return in United States dollars for the first seven years. The
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profit shared by Party B shall be settled in RMB. Party A shall be
responsible for taking care of all the procedures to exchange RMB into
foreign currency and remitting it to the bank account specified by Party B.
Both parties A and B agree that if the exchange rate of U.S. dollars to RMB
is 1:9.5 or below 1:9.5, then the exchange risk shall be borne by the
cooperative company. If the exchange rate is above 1:9.5, the cooperative
company will apply for an increase of toll fee through a relevant authority
or will extend the operation period.
12.3 The cooperative company has the priority to have the rights of acquisition
for the remaining part of Jinlong Highway. In order to ensure the
cooperative company can pay to all the parties according to the
stipulations in this contract, both parties agree to open a specified bank
account at Huizhou branch of People's Construction Bank for Tongkeng toll
booth, Pingling toll booth and other toll booths in transit set up in the
future or other cooperation company or the toll booths which party A has
the operation right so as to have the collected fee of the toll booths
saved. The usage of the deposit will be supervised by the bank. Party B is
entitled to request the bank use the deposit to pay for Party B first.
CHAPTER 13 LABOUR MANAGEMENT
13.1 The matters of the cooperative company concerning the recruitment,
employment, dismissal, resignation, wages, employee insurance, welfare,
rewards and others shall be handled according to the employment management
provisions of foreign investment enterprise in China and the employment
contract individually signed between the cooperative company and employees.
After signing the employment contract, it should be filed in a local
employment management department according to the regulations.
13.2 Board of Directors shall decide the wages, welfare, social insurance,
travel allowance of the general manager, deputy general manager, senior
management staff and specialist.
13.3 The employees of the cooperation company are entitled to establish a trade
union and to start the activities of the trade union in accordance with the
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stipulations of "Employment Law of People's Republic of China.
CHAPTER 14 FOREIGN EXCHANGE MANAGEMENT
14.1 All matters pertaining to foreign exchange affairs of the cooperation
company shall be handled in accordance with the present regulations and
future effective regulations promulgated by the Chinese Government.
14.2 According to the resolutions of the Board Meeting, the cooperation company
shall open a foreign currencies account and RMB account according in Bank
of China or other financial institutions approved by the People's Bank of
China.
14.3 The wages of the staff abroad and others proper returns of the cooperative
company shall be remitted abroad in accordance with the regulations.
14.4 Under the permission of the law, if the cooperation company receive foreign
currencies from the business, Party A shall be responsible for handling all
the necessary procedures stipulated by the government.
CHAPTER 15 TAX, FINANCIAL AND AUDIT
15.1 In the view of the fact that the business of the cooperative company, which
brings a positive effect to the economy, is to construct and manage the
toll road and the cooperative company has injected a vast amount of capital
and born a high risk, however, the investment return period is long.
Therefore, parties A and B shall strive for obtaining taxes and expenses
privilege from the government at provincial and state level.
15.2 The financial accounting of the cooperative company will be in accordance
with the "People's Republic of China Foreign Investment Enterprise
Management Provisions", "People's Republic of China Foreign Investment
Enterprise Accounting Policy" and the relevant requirements stipulated by
Board of Directors.
15.3 The opening and closing of bank accounts of the cooperative company shall
be jointly signed by the representatives of both parties or the general
manager nominated by Party B and the deputy general manager nominated by
Party A or the chief accountant. The usage of the capital shall be strictly
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conformed to the financial policy passed by Board of Directors. The
expenditure company checks shall be jointly signed by the general manager
and the deputy general manager nominated by Party A or the chief
accountant.
15.4 The general manager shall report the operation situation of the previous
quarter and submit the financial statement of that quarter to the
cooperative partners before the 10th day of the first month of each
quarter. The cooperation parties are entitled to request Board of Directors
or general manager to provide information showing financial situation of
the company anytime.
15.5 Within the first three months of each fiscal year, the general manager
shall prepare the previous year's balance sheet, profit and loss statement
and submit to Board Meeting for examination and approval.
15.6 The fiscal year of the cooperative company shall start from 1st January to
31st December each year. All vouchers, receipts, financial statements and
ledgers shall be written in Chinese.
15.7 The ledgers shall be recorded in RMB. In case the transaction is handled in
foreign currencies, then it will be recorded in foreign currency. The
exchange rate of RMB and foreign currencies will be the mean of the foreign
currencies exchange rate announced by the People's bank of China on the day
of the deal. The monthly financial statement shall be submitted to Board of
Directors within 5 days after the end of the month, quarterly financial
statement within 30 days after the end of the quarter and annual financial
statement within 3 months after the end of the year.
15.8 The cooperative company shall act in accordance with the stipulations of
the "People's Republic of China Sino-foreign Cooperative Operational Law"
to withdraw the legal provident fund and public welfare fund. The
proportion of withdrawal of the legal provident fund and public welfare
fund every year shall be decided by Board of Directors according to the
operation situation of the cooperative company.
15.9 The cooperative company shall employ an international auditors or an
international recognized auditors to audit the accounts of the cooperative
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company. The auditors' report shall be delivered to Board of Directors and
the general manager. If it is necessary to re-audit the account anytime
during the cooperative period, any party shall employ other auditors to
carry out another independent audit. The audit fee will be paid by that
party. If the independent second audit reviews that there are errors in
relevant financial statements and final accounts, the responsible party
shall pay for the audit expenditure of the independent second audit and
double damages to the aggrieved party.
CHAPTER 16 THE AMENDMENT, ALTERATION AND DISCHARGE OF THE CONTRACT
16.1 The amendment of this contract shall be effective only after being signed
by both Parties A and B and the official approval procedures have been
completed.
16.2 The contract can be discharged in advance under the following circumstances
(under this circumstance, the cooperative company can be dismissed):
(1) Either cooperative party purchases all the rights and interests of the
other party;
(2) Both the cooperative parties unanimously agree to discharge the
contract in advance;
(3) Either party is willing to or is forced to announce bankrupt; or starts
to bankrupt, consolidate or carries out liquidation procedures; or the
party has reached an agreeement with the creditors to liquidate all or part
of the debts and the other party of the contract issues a notice of
discharge of the contract in advance.
16.3 Without affecting the effect of the stipulations in Chapter 17, the
contract can be discharged in advance. Under this circumstance, all
property of the cooperative company shall be liquidated (except for the
condition stated in 16.2(I)). During liquidation, the value of the road
section of the project and other auxiliary facilities shall be calculated
according to the book value at the time of liquidation. The book value of
other properties shall be reviewed according to the market price at that
time. The properties after liquidation, having deducted reasonable
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expenses, shall be shared according to the ratio of the registered capital
injected into the cooperative company by the cooperative two parties in
order not to damage the rights and interests of the cooperative company.
CHAPTER 17 LIABILITIES FOR BREACH OF CONTRACT
17.1 Should either Party A or Party B fail to pay on schedule the contribution
in accordance with the provisions stipulated in Chapter 6 of this contract,
the breaching party shall pay 1% of the late payment as a penalty for the
delay for the first month. Should the breaching party fail to pay after two
months, apart from paying 3% of the late payment as a penalty, the other
party shall be entitled to terminate the contract and to seek economic
damages from the breaching party.
17.2 Apart from the situation mentioned in 17.1, should either party breach the
contract or its appendices and/or the stipulations of the Articles of
Association of the cooperative company (including any statements,
warranties, promises) the party shall compensate the other party all the
expenses arisen. The aggrieved party shall be entitled to terminate the
contract anytime in advance.
17.3 The provisions above this condition do not eliminate other stipulations
which the foreign party is based on the provisions and appendix of the
contract. Foreign party requests the guarantor fulfill the obligations to
the Chinese party or obtain the investment return and compensation right
from the specified account on behalf of the Foreign party. The rights
mentioned above are juxtaposed and do not have priority.
CHAPTER 18 THE DISMISSAL AND LIQUIDATION AFTER THE EXPIRATION OF THE TENURE
18.1 The cooperative company shall be dismissed upon its expiration in
accordance with the stipulation in Chapter 9 (except for the extension of
the term of the cooperative contract). Board of Directors of the
cooperative company shall work out the procedures and principles of the
liquidation and nominate candidates to form a Liquidation Committee in
accordance with relevant laws and regulations of the People's Republic of
China.
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18.2 Upon the approval of Board meeting, the Liquidation Committee (including
the representative appointed by both parties) shall sort out all assets,
credits and liabilities of the cooperative company, work out assets and
liabilities statement and financial checklist, put forward the basis on
which the property is to be valued and calculated, and a handling process.
After the payment of all reasonable expenditure, the assets after
liquidation shall be the remaining current assets of the cooperative
company. Parties A and B shall get 20% and 80% of the current assets
respectively and Party A shall get all the remaining fixed assets without
valuation.
18.3 Upon the liquidation, a liquidation report shall be submitted to Board
Meeting for approval by the Liquidation Committee. The Liquidation
Committee shall report to the examination and approval authority and
nullify the registration procedure and hand in the business license for
cancellation from the original registration authority.
18.4 The termination of the contract and the dismissal of the cooperative
company shall not affect any other rights which have been conferred by this
contract, including the rights for litigation and for seeking compensation
for all loss and expenses.
CHAPTER 19 APPLICABLE LAW
19.1 The conclusion, effectiveness, explanation, performance, solution of
dispute are bound by the law of the People's Republic of China.
CHAPTER 20 SETTLEMENT OF DISPUTES
20.1 Any disputes arising from the execution of, or in connection with the
contract shall be settled through friendly consultations between both
parties. In case no settlement can be reached through consultations, the
disputes shall be submitted to the Foreign Economic and Trade Arbitration
Commission in accordance with its rules of procedure. The arbitrative award
is final and binding upon both parties. All expenses arising from the
arbitration shall be borne by the loser.
20.2 During the arbitration process, apart from the section of the contract
which the dispute is arisen, both parties shall continue to fulfill the
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remaining part of the contract.
CHAPTER 21 THE EFFECTIVENESS OF THE CONTRACT AND MISCELLANEOUS
21.1 All terms and conditions stipulated according to the provisions of this
Articles of Association shall be the appendix of this contract.
21.2 The contract and the appendix shall be effective after obtaining the
approval from relevant government authority. This contract is effective on
the day when it is obtained an approval. For matter(s) not being mentioned
in this contract, both parties shall establish a supplementary agreement as
an appendix of this contract.
21.3 When one Party does not exercise certain rights of the contract, it does
not mean that it gives up the rights or the remedies it has. Similarly,
when one party gives up certain rights or is exempted from fulfilling
certain obligations to the other party, it does not imply that this party
gives up its other rights or is exempted from the other obligations to the
other party. The party concerned can exercise the right and demand of
compensation in accordance with the stipulations of the contract and the
other rights and demands of compensation conferred by the law.
21.4 Should either of the parties to the contract be prevented from executing
the contract by force majeure shall notify the other party immediately and
provide a detail report of the event and the demand of exemption to the
other party within 14 days. The party concerned shall try its best to
minimize and make up for the loss through taking measures. The detailed
report shall be enclosed with documents issued by the local notary
organization or relevant government authority to certify the occurrence of
such event as a result of the force majeure. Both parties shall, through
consultations, decide whether to terminate the contract or to exempt part
of the obligations fulfilled by the party affected or to postpone the
execution of the contract in accordance with the effects of the force
majeure brought on the performance of the contract.
21.5 If there is any conflict(s) arisen between this contract and Articles of
Association or other agreements or contracts signed by the two parties
between the cooperative company or the cooperative two parties and Party A
or Party B, all terms and conditions shall be in accordance with this
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contract. If there are any conditions owing to certain reasons that are not
effective or cannot be enforced, they will not affect the legality and
effectiveness of this contract if unanimous agreement is obtained from the
cooperative two parties. Meanwhile, both parties shall amend or correct the
condition(s) which is not effective or unable to execute as soon as
possible.
21.6 Both parties make representation and warranties to the other party. In all
circumstances, each party should disclose all information in relation to
the cooperative company and its operation to other party.
21.7 Notice to either party according to the stipulations in this contract shall
be made by letter and/or fax in accordance with the address stipulated in
Chapter 3 of this contract. If the notice is sent by mail, the delivery day
will be the seventh day after the registered mail is sent. Any party who
changes its any correspondence address (including registered address,
telegram number, facsimile number) shall inform the other party by prior
written notice.
21.8 The index and heading of this contract is for easy reference only. They do
not affect the content, meaning and explanation of all provisions.
21.9 This contract shall be written in Chinese with eight original copies which
all have the same binding forces. The cooperative two parties each keep two
copies. The remaining copies will be delivered to relevant units for
filing. Duplication copies will be made if necessary. This contract is
signed on 5th August 1996 in Hong Kong by the authorized representatives of
both parties.
Party A :Huizhou Highway Property Party B: Guanghui Highway Project Co. Ltd.
Development Company
Authorized Representative: Authorized Representative:
Seal: Seal:
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Appendix II
SUPERVISION AGREEMENT ON SPECIFIED BANK ACCOUNT
This agreement is signed by three parties hereunder at Huizhou, Guangdon
province on 5th August, 1996:
Party A : Huizhou Highway Property Development Company
Party B : Guang Hui Highway Project Company Limited
Party C : Construction Bank of China, Huizhou Branch
WHEREAS Party A and Party B signed the "Regarding the establishment of Guinghui
Highway Development Co. Ltd. Agreement" ("cooperative contract") on 5th August,
1996 and a Sino-foreign cooperative company ("cooperative company") is
established in Huizhou, Guangdon province accordingly;
WHEREAS in accordance with the cooperative contract, the cooperative company
shall allocate the income to party B with first priority;
NOW THEREFORE Party A, Party B and Party C shall herein agree and comply with
the following provisions signed:
1. Party A and Party B agree to open a Specified Bank Account in Party
C's Huizhou Branch under the name of the cooperative company for
saving the toll fees of the toll booths in Tongkeng, Pingling or other
toll booths that may be set up by the cooperative company in the
future. Both Parties A and B guarantee that all toll fees collected
either in RMB or foreign currency will be deposited into the specified
bank account in accordance with the laws and related regulations.
2. In order to ensure that all income from the toll booths shall be
deposited in Party C bank account, Party C agrees to appoint a person
to reach the toll booths at 11:45 a.m. and 6:00 p.m. everyday to check
the collected toll fees on the spot and deposit them into the
specified bank account.
3. The Party or Parties concerned shall cooperate with Party C when Party
C carries out its work at toll booths and shall provide evidence for
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the toll fee(s) that has been written out but has not been deposited
in the bank.
4. Party C shall carry out its work seriously in toll booths in
accordance with the stipulations of the State Exchange, Banking and
Business and shall keep the daily accounting records for reference.
5. Under normal conditions, the deposit in specified bank account shall
only be used to pay for the expenses arising from the implementation
of the cooperative contract, including the management expenses of the
first phase of investment and Jinlong Highway.
6. In case the cooperative company does not comply with the provisions of
the cooperative contract and does not pay for Party B the agreed
minimum return on time, Party C agrees, having received the written
notice from Party B, to supervise the specified bank account
immediately. All the deposit in the specified bank account shall be
used to pay for Party B's agreed minimum return in accordance with the
cooperative contract. Party A agrees that Party B is entitled to
request Party C to supervise the accounts of other road section of
Party A. In case the cooperation company does not generate enough
income to pay for Party B the agreed minimum return mentioned in
Article 12.1 and 12.2 of the contract. Party B is entitled to request
the bank to autopay Party B the agreed minimum return compromised by
Parties A and B from Party A's account of other road section. When the
cooperative company or guarantor (i.e. Party A) has paid the minimum
return to Party B, the cooperative company shall not withdraw any
deposit of the specified bank account until Party B agrees and
provides a written notice to Party C to release the supervision.
7. This agreement shall be effective from the day when it is signed and
shall be expired after the liquidation is completed.
8. This agreement and appendices shall be effective when they are signed
by the three parties. The agreement has three original copies. Each
party shall keep one of these copies.
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Party A: Huizhou Highway Property Development Company Limited.
Authorized Representative:
Chop:
Party B: Guang Hui Highway Project Company Limited
Authorized Representative:
Chop:
Party C: Construction Bank of China, Huizhou Branch
Authorized Representative:
Chop:
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SUPPLEMENTARY CONTRACT
Party A: Huizhou Highway Property Development Company
Party B: Guanghui Highway Project Company Limited
Through friendly consultation, Parties A and B both agree to establish a
Sino-foreign Joint Venture called Guanghui Highway Development Company Limited
(hereinafter "Joint Venture") and have signed a Joint Venture Contract in
relation to the establishment of Guanghui Highway Development Company Limited
(hereinafter "Joint Venture Contract") in the 5th day of August, 1996. The
following shall be added to the Joint Venture Contract:
1. The supplementary illustrations of the income of the Joint Venture and its
allocation in Section 1 of Chapter 12 in the Joint Venture Contract are as
follows:
Both Parties agree to allocate the income from the Joint Venture
according to the agreed ratio and methods below.
In order to guarantee the investment return (hereinafter "agreed return,
it will be calculated by installments in accordance with the actual amount
injected and the timing of injection into the bank account of the Joint Venture
by Party B) for the capital injected by Party B into the Joint Venture for the
first 7 years (ie. From the first to the seventh year) shall not be less than
22% (annual investment return rate), Party B shall take precedence to get the
remaining net amount (hereinafter "net amount for distribution") after the
deduction of 15% regular expenses, taxes and other expenses from the annual
revenue of the Joint Venture. In case the net amount for distribution is less
than the agreed return, Party A shall directly pay the insufficient portion to
Party B. The Joint Venture and Party A shall pay off the agreed return to Party
B quarterly (on 31 March, 30 June, 30 September and 31 December each year)
according to the above stipulation.
Both Parties agree that from the eighth year since the establishment of the
Joint Venture, Party A shall get 30% from the net amount for distribution from
the Joint Venture as the return for distribution (hereinafter "precedence to
distribute the return) that Party A shall take precedence to distribute the
return, until the total accumulated amount of the return that Party A takes the
precedence to distribute is equivalent to the principal and interest of the
capital injected by Party A (with an annual return rate of 13.5%). The above
period is called "period for Party A takes precedence to distribute". Both
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Parties anticipate that the period for Party A takes precedence for distribution
shall be less than 10 years.
The formula of the calculation of the distribution of return by Party A's
precedence is as follow:
In case Y is the total number of days that Party's precedence to distribute
the return:
The total accumulated amount of the return distributed in precedence to
Party A with the distribution period in precedence = total amount of
capital injected by Party A X [ 1+13.5% X (7+Y/365)]
During the period that Party A takes the precedence for distribution, the
remaining amount, after the deduction of the return for distribution in
precedence, of the net amount for distribution shall be distributed by Party A
and Party B according to the ratio of 2:8 respectively. Beyond the above period,
the total net amount for distribution shall be distributed by Party A and Party
B according to the ratio of 2:8 respectively.
2. The following shall be added to Section 1 of Chapter 12 in the Joint Venture
Contract about the settlement of disputes:
Any disputes arising from the execution of, or in connection with the contract
shall be settled through friendly consultations between both Parties. In case no
settlement can be reached through consultations, the disputes shall be submitted
to the Shenzhen Branch, China International Economic and Trade Arbitration
Commission for arbitration in accordance with its rules of procedure. The
arbitral award is final and binding upon both Parties. All expenses occurred by
the arbitration shall be borne by the Party who loses the arbitration
proceedings.
3. Others:
This supplementary contract shall be written in Chinese with two original
copies. They shall be signed and sealed by Party A and Party B and each Party
shall keep one copy.
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Party A: Huizhou Highway Property Development Company
Party B: Guanghui Highway Project Company Limited
Authorized Representative: Authorized Representative:
- -------------------------- --------------------------
Seal: Seal:
30th October, 1996
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MEMORANDUM
Party A: Huizhou Highway Property Development Company Limited
Party B: Guanghui Highway Project Company Limited
After friendly consultation between Parties A and B on the matter of the
establishment of a Sino-foreign Joint Venture Guanghui Highway Development
Company Limited (hereinafter "the Cooperative Company"), the following remarks
have been added to the Cooperative Contract of the Establishment of Guanghui
Highway Development Company Limited (hereinafter "the Cooperative Contract")
which was signed on 5 August, 1996:
I. The following are the additional remarks in Section 4, Chapter VI of the
Cooperative Contract concerning the method and conditions of making
contribution by Party B:
1. Apart from the registered capital of cash US$9.536 million
(US$9,536,000), Party B shall, according to the progress of the
project, pay the remaining contribution of US$14.304 million
(US$14,304,000, hereinafter "the remaining contribution"), with the
maximum monthly amount of US$3 million (US$3,000,000). The progress of
the project shall be recognized by the related party while party A
shall provide the guarantee of quality before acceptance.
2. Party A consents to comply with the following arrangements (i) and
(ii) before Party B has not contributed its total remaining
contribution. Besides, Party A shall not demand for any repayment.
(i) Party A consents that the Cooperative Company shall pay any
repayment each month by installment;
(ii) the amount that the Cooperative Company pays to Party A for any
repayment shall not exceed the exact amount that Party B
contributes into the Cooperative Company that month.
II. The followings are the additional remarks of Subsection 12.1 in Article 12
of the Cooperative Contract made by both parties:
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1. After the deduction of the regular expenses (accounting for 15%of Toll
Fee collected), public welfare fund (approximately accounting for
several percent of Toll Fee collected, the exact amount shall be
decided by the Board of Directors of the Cooperative Company
annually), any related taxes levied and the amount decided to be
withdrawn by both parties or the Board of Directors of the Cooperative
Company from the total revenue of the toll booth, starting from the
first year of the contribution made by Party B (from the 1st to the
30th year), the remaining amount (hereinafter called as "annual
distribution amount") shall be used to pay the distribution shared by
both Parties.
2. Between the 1st and the 7th year, Party B shall take precedence to
receive an amount equivalent to 22% of its total investment input
(calculated by the exact amount of contribution and according to the
time in different stages of making contribution into the bank account
of the Cooperative Company) from "annual distribution amount", that is
the net return after the deduction of the required expenses (for
example, regular expenses, etc.) according to the accounting system in
China. Any profit from "annual distribution amount" less this net
return shall be shared by both parties according to their respective
investment proportion.
3. From the 8th year onwards, 70% of the "annual distribution amount"
shall be withdrawn as the dividends shared by both Parties (according
to the proportion of 2:8), the remaining 30% shall be used as the
repayment of the principal and interest of the 20% total capital
investment made by Party A, (calculated according to an annual
interest rate of 13.5%), and up to the time that Party A gets back the
principal and interest. After Party A receives its principal and
interest, both parties shall share the profit according to their
investment proportion (2:8).
4. If the Cooperative Company fails to pay all the receivable amount
shared by Party B, Party A shall pay Party B the difference on
schedule.
5. Regarding the above-mentioned amount, the payer (the Cooperative
Company or Party A) shall pay the payee (Party A or Party B) on the
31st March, 30th June, 30th September and 31st December annually by
installments. If the pay date falls on a non-working day, the payer
shall pay the payee the working day before.
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III. Additional Provisions
1. This memorandum is written in Chinese with two original copies. They
shall be of equal legal force and kept by both parties after the
memorandum is signed and sealed by both parties. Duplicate copies
shall be made when required and filed in the relevant department.
2. In the event of any discrepancy of this memorandum and Cooperative
Contract or other articles made by both parties, this memorandum shall
prevail or the discrepancy shall be settled by the negotiation of the
both parties.
Party A: Huizhou Highway Property Party B: Guanghui Highway
Development Company Limited Project Company Limited
Authorized Representative: Authorized Representative:
(Signature) (Signature)
(Seal Affixed) (Seal Affixed)
___ day of ___, 1996
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CONTRACT OF ASSURANCE
This contract is signed by and between the following parties on the 30th day of
October, 1996 in Huizhou, Guangdong Province, China:
Guarantor A: Huizhou Highway Bureau
Guarantor B: Huizhou Highway Property Development Company
Guarantee: Guanghui Highway Project Company Limited
WHEREAS Guarantor B is a wholly-owned subsidiary of Guarantor A;
WHEREAS Guarantor B and Guarantee have signed a Cooperative Contract
(hereinafter "the Cooperative Contract") on the 5th day of August, 1996
concerning the establishment of Huizhou Guanghui Highway Development Company
Limited. During the existence of the Huizhou Guanghui Highway Development
Company Limited (hereinafter "the Cooperative Company"), the Cooperative Company
shall take precedence to pay Guarantee a certain Minimum Amount of Distribution
annually according to the stipulations in the Cooperative Contract and other
agreements made by both parties,
WHEREAS Guarantor A and Guarantor B both consent to ensure Guarantee shall
receive the profit, not less than the Minimum Amount of Distribution, from the
Cooperative Company at each installment;
NOW THEREFORE, in consideration of the foregoing, the adequacy which is
hereby acknowledged, the parties hereto covenant and agree as follows:
1. Otherwise indicated in this contract, the terms shall have the
meanings as follows:
i. "Guarantor" means Guarantor A and Guarantor B;
ii. "Stipulation of Distribution" means the stipulation of the
Cooperative Company to distribute the operating revenue to those
two cooperative parties mentioned in the Cooperative Contract and
other agreements made by them;
iii. "Minimum Amount of Distribution" means, according to the
Stipulations of Distribution, the minimum amount of distribution
of the operating revenue that the Cooperative Company distributes
to Guarantee by installments;
iv. "Distribution Day" means the day that the Cooperative Company,
according to the stipulations of distribution, distributes the
operating revenue to Guarantee ;
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v. "Distribution Difference" means, according to the Stipulation of
Distribution, the difference between the actual amount and the
minimum amount of distribution given to Guarantee by the
Cooperative Company.
2. During the existence of the Cooperative Company, Guarantor shall
guarantee non-rescinding and unconditionally, if, according to the
Stipulation of Distribution, the operating revenue in any stage
distributed to Guarantee by the Cooperative Company is less than the
Minimum Amount of Distribution, Guarantor shall deposit the
Distribution Difference into the designated bank account of Guarantee
within 5 days upon the Distribution Day.
3. If Guarantor fails to pay the Distribution Difference, according to
the stipulation in paragraph 2, to Guarantee on schedule, Guarantor
shall additionally pay the interest of breach of contract to
Guarantee. The interest of breach of contract is calculated by using
0.2% of the Distribution Difference as the daily interest, starting
from the Distribution Day and until the Distribution Difference and
the interest of breach of contract owed by Guarantor have all been
paid off.
4. The average monthly revenue in 1996 of Guangshan Highway Chentang toll
booth, which is wholly-owned by Guarantor, is approximately RMB4.5
million. In order to implement the stipulation in paragraph 2,
Guarantor has agreed to use the operating revenue of Chentang toll
booth as the reserve to pay Distribution Difference. Guarantor has
also agreed to deposit all the operating revenue from Chentang toll
booth to the designated account (hereinafter "designated account")
mentioned in Appendix II of the Cooperative Contract, so as to deposit
the designated account with sufficient reserve to pay the Minimum
Amount of Distribution for 3 months. Guarantee shall, according to the
Stipulation of Distribution, calculate the Minimum Amount of
Distribution for the next 3 months and inform the bank of the
designated account, and this amount shall be the Minimum Deposit
(hereinafter " the Minimum Deposit") maintained in the designated
account. When the total cash deposit in the designated account exceeds
the Minimum Deposit, Guarantor can make use of the money in the
designated account contributed by Guarantor itself, but a total amount
exceeding the Minimum Deposit shall be maintained. When the total cash
deposit in the designated account is less than the Minimum Deposit, it
can only be withdrawn with the written consent made by both parties.
If the operating revenue from Guangshan Highway Chentang toll booth
fails to provide sufficient cash reserve, Guarantor has agreed to
deposit the designated account with its own revenues and other cash
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income source in order to maintain sufficient cash reserve to pay
Minimum Amount of Distribution.
Guarantor must prove in evidence the holding the Guangshan Highway
toll booth and other ownership and penalty right of the toll booth as
to guarantee to have the Minimum Amount of Distribution.
5. Guarantor hereby represents and guarantees:
i. Guarantor shall have the right to sign this Contract in
accordance with the laws of the PRC and have sufficient economic
and financial abilities to fulfill the obligations stipulated in
this Contract. This Contract shall be signed by Guarantor with
effective procedure and shall be binding since the date of
signing.
ii. Guarantor has taken all the appropriate actions and gained the
necessary authorization to sign and fulfill the obligations in
this Contract.
iii. In case the payment, for fulfillment of assurance obligation, to
Guarantee is paid off by Guarantor, no taxes shall be deducted.
iv. The reorganization, changes of status and financial position of
Guarantor shall not affect its fulfillment of obligations.
v. This Contract shall have the same binding effect to the merger,
acquisitor, assignee, partner, representative and any other
successor of Guarantor.
6. The assurance made between Guarantor A and Guarantor B under this
Contract shall be a joint assurance. Guarantee shall request either
Guarantor bear all or part of the assurance obligations.
7. The Contract of Assurance specifies the basic obligations and
liabilities of the guarantor. The Contract of Assurance shall be
continued to be effective regardless of any change in the ability of
the performance of the cooperative company or obligation of the
cooperative company under the cooperative contract. In addition,
should there is any further amendment in the cooperative contract or
supplementary contract in the future, the assurance obligations of the
guarantor will be accorded with the payment obligation of the
guarantee by the cooperative company specified in the supplementary
contract after amendment.
8. Solely for the Contract of Assurance, the guarantor shall not waive
any obligations of the guarantee stipulated in the Contract of
Assurance should the guarantee makes any delay on payment and
concession.
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9. The Contract of Assurance is still effective until the cooperative
corporation and guarantor settle all payments in accordance with the
provisions stipulated in the cooperative contract and the
supplementary contract.
10. The following situations shall not affect, weaken, alter, restrict or
eliminate the assurance obligations of the guarantor. The guarantor
shall continue to completely fulfill its assurance obligations.
(a) The cooperative company is allowed to extend the cooperative
period after consultation from the three parties.
(b) Part of the provisions of the cooperative agreement is invalid or
either Party A or Party B breaches the contract.
(c) The court and administrative department concerned impose
mandatory execution on the properties of the cooperative company
in order to pay for any liabilities of the cooperative company.
11. Any disputes arising from the execution of , or in connection with the
contract shall be settled through friendly consultations between both
parties. In case no settlement can be reached through consultations,
the disputes shall be submitted to the Shenzhen branch of the Foreign
Economic and Trade Arbitration Commission in accordance with its rules
of procedure. The arbitrative award is final and binding upon both
parties. All expenses arising from the arbitration shall be borne by
the loser.
During the arbitration process, apart from the section of the contract
which the dispute is arisen. Both parties shall continue to fulfill
the remaining part of the contract.
12. This contract is written in Chinese with three original copies which
are all binding. The guarantor and the guarantee both keep an original
copy after the contract is signed and stamped. The duplicated copy
will be duplicated if necessary and will be delivered to the concerned
unit for filing.
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Guarantor A: Huizhou Highway Department Guarantor B: Huizhou Highway Property
Development Company
Authorized Representative: (Signature) Authorized Representative: (Signature)
Seal: Seal:
Guarantee: Guanghui Highway Project Company Limited
Authorized Representative: (Signature, Mr. Yiu Yat On)
Seal:
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NOTARIZATION
NOTARY OFFICE, HUIZHOU, GUANGZHOU PROVINCE, THE PEOPLES' REPUBLIC OF CHINA
JINLONG HIGHWAY PROJECT CONSTRUCTION TURN-KEY CONTRACT
Party A: Huizhou Guanghui Highway Development Company Limited (hereinafter "
Party A")
Party B: Huizhou Highway Property Development Company (hereinafter "Party B")
Party C: Huizhou Highway Bureau (hereinafter "the guarantor")
In accordance with the principles of "The Economic Contract Law of the People's
Republic of China", "The Ordinances of Contract Agreement for Construction and
Installation Project" and "Cooperative Contract Concerning the Establishment of
Guanghui Highway Development Company Limited" and with the combination of the
specific situation and the implementation of this Contract guaranteed by Huizhou
Highway Bureau, the following provisions of the contract (hereinafter "the
Contract") are concluded by Parties A, B and C (hereinafter "the three
Parties").
Article 1 Project Description
1.1 Name: Construction Project of Jinlong Highway
Location: A 71.776 km long highway extends from Xiaojinkou to Baishaqiao,
Longmen, Huizhou, Guangdong Province. The first stage of the project
extends from Baishaqiao, Longmen, passing Pingling, to the junction of
Gongzhuang Town and Yangcun Town, Boluo, with a total length 35 km.
Content: The first stage of the project extends from Baishaqiao, Longmen,
passing Pingling, to the junction of Gongzhuang Town and Yangcun Town,
Boluo, with a total length 35 km.
Scope of Turn-key Contract: The road bed of the first stage of the project
is 18m in width and will be gradually increased to 23m.
1.2 Date of Commencement: The project commences on the date of the
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establishment of the Cooperative Company.
Date of Completion: At the end of December, 1997.
1.3 Quality Standard: The quality of the project shall meet the qualified
standard of the national or professional quality examination standard (in
accordance with Article 3.3 of this Contract).
1.4 Cost: Jinlong Highway is 71.776 km long and its total cost of the contract
agreement is RMB560 million ( US$67.3 million).The total cost of the first
stage of the contract agreement (a 35 km highway from Baishaqiao, Longmen,
passing Pingling, to the junction of Gongzhuang Town and Yangcun Town,
Boluo) is RMB247.93 million (US$29.8 million). Party B shall gain the
profit upon the deduction of the exact amount from the above receivable
payment. In case there is a loss, Party B shall raise the capital by itself
to make up for the loss.
1.5 Form of payment for the capital required: It is executed in accordance with
Article 6.4 of "Cooperative Contract Concerning the Establishment of
Guanghui Highway Development Company Limited".
Article 2 Contract and Interpretation in Sequence
All the contract documents shall interpret and illustrate each other. Unless
otherwise indicates in this Contract, the formation and interpretation shall be
as follows:
2.1 The provisions of this Contract;
2.2 terms of the Cooperative Contract;
2.3 summary and agreement concerning the negotiation and changes of clarifying
the substantial rights and obligations of both parties;
2.4 tender notice, tender and tender documents of tender contract;
2.5 checklist of the work load or the budget report and blueprints of the
confirmation of the project price;
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2.6 standard, specification and other related technical data and technical
requirement.
When there is ambiguity or inconsistency in the contract, it shall be
solved through consultation by both parties (for those who have social
inspector shall be explained by chief inspection engineer first) provided
that the project progress will not be affected. In case the common
understanding of both parties still cannot be reached, it can be solved in
accordance with the stipulation in Article 31.
Article 3 Language, Standard and Applicable Law Used in the Contract
3.1 This Contract is written, interpreted and illustrated in Chinese.
3.2 This Contract is applicable to the rules and regulations of the People's
Republic of China and the construction specification and technical
requirement of highway construction stipulated by the Ministry of
Transportation of the People's Republic of China.
3.3 This project is applicable to the technical specification and standard of
JTJ033-86, JTJ034-85, GBJ97 and JTJ071-85 issued by the Ministry of
Transportation of the People's Republic of China.
Article 4 Blueprints
Party B shall organize, design, carry out construction and execute turn-key
contract towards Party A in accordance with the "Feasibility Report of the
Construction of Jinlong Highway".
Article 5 Party A shall issue a written notice separately to include the list of
its representatives and appointees.
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Article 6 Party B shall issue written notice separately to include the list of
its representative and appointees.
Article 7 Party C shall issue written notice separately to include the list of
its representative and appointees.
Article 8 Party A's Responsibilities
8.1 To raise fund for the project and make contribution according to the
progress of the project.
8.2 To have a joint checkup on the blueprints and design the documents.
8.3 To supervise and ensure the quality and progress of the project, and the
audit the cost of the project.
Article 9 Party B's Responsibilities
Party B shall perform the following duties according to the time and
requirements stipulated in the contract.
9.1 Within the scope permitted by the Qualification Certificate, the
construction shall be carry out according to the stipulation in the
contract.
9.2 To provide Party A with a monthly, quarterly and annual plan concerning the
progress of the project and the corresponding statistic report and accident
report.
9.3 To provide the illumination, safeguard, fence and guards as well as their
maintenance services during daytime according to the requirement of the
project.
9.4 To provide Party A with houses and facilities on the work-site for working
and living according to the number and requirements stipulated in the
contract. Party B shall bear the expense of occurrence.
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9.5 To comply with the rules stipulated by the local government and relevant
departments concerning the transportation and noise control in the
construction site.
9.6 Party B shall safeguard the completed section in accordance with the
stipulation in the contract before it is handed over to Party A. During
this maintenance period, Party B shall repair all damage with its own
expense.
9.7 To safeguard the underground pipelines on the work-site, buildings nearby
and its structures as required in the Contract.
9.8 To ensure the cleanliness of the construction site conforming to the
relevant stipulations.
9.9 To pay all related taxes during construction, such as business tax for the
construction.
Party B shall compensate the Party A for its failure to perform all the above
duties resulting in any delay or loss.
Article 10 Party C's Responsibilities
Party C has agreed to bear all the liabilities of Party B and shall compensate
Party A for the loss in case Party B fails to perform any provision of this
Contract.
Article 11 Progress Plan
Party B shall submit a project organization plan (or construction proposal) and
progress plan to the representative of Party A on the date stipulated in the
contract. The representative of Party A shall approve or propose any opinion for
improvement according to the time stipulated in the contract. The project
organization plan (or construction proposal) and progress plan shall be regarded
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to have been approved in case Party A fails to reply within the stipulated time.
Party B shall organize the construction according to the approved progress plan
and accept the examination and supervision of the progress made by the
representative of Party A. In the event that the actual progress does not accord
with the progress plan, Party B shall submit a proposal of improvements as
required by the representative of Party A and such proposal shall be executed
after Party A's approval.
Article 12 Postponement of the Construction
Party B shall commence the construction according to the date stipulated in the
contract. Should Party B fail to commence the construction on schedule, Party B
shall inform the representative of Party A of the reason and demand for the
postponement of the construction 10 days prior to the date of commencement as
stipulated in the contract. The representative of Party A shall give its reply
to Party B in 7 days. In case the representative of Party A agrees the demand
for postponement or does not give reply in 7 days, the demand of Party B shall
be regarded to have been agreed and the date of commencement shall be
correspondingly postponed. In case the representative of Party A does not agree
the demand of postponement or Party B does not propose the demand for
postponement within the designated time, the date of completion shall not be
postponed.
Having gained the consent of Party B, Party A shall postpone the date of
commencement by written notice and correspondingly, postpone the date of
completion.
Article 13 Suspension of the Construction
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The representative of Party A, when necessary, shall ask Party B to suspend the
construction and propose any opinion for improvement in 48 hours upon the demand
has been made. Party B shall suspend the construction according to the demand of
Party A and safeguard the completed section of construction. After the
implementation of such opinion proposed by the representative of Party A, Party
B shall propose the demand to return to work and the representative of Party A
shall give approval to the commencement of the construction. In case Party A
fails to propose any opinion for improvement within the designated time or does
not reply within 48 hours upon the demand of return to work proposed by Party B,
Party B shall return to work by itself. The responsibility of the suspension of
construction shall be borne by Party A and the corresponding expense on
postponement of construction shall be decided by the Board of Directors of Party
A.
Article 14 Delay of the Construction
The followings are the delays resulting from the postponement of the date of
completion. After obtaining the recognition of the representative of Party A,
the date of completion shall be delayed.
14.1 The change of the work load and design;
14.2 the suspension of construction accumulates over 8 hours in a week due to
the suspension of the supply of water, electricity and gas which are not
caused by Party B;
14.3 force majeure;
14.4 other conditions stipulated in this Contract or the postponement agreed by
the representative of Party A.
Party B shall submit a report concerning the delay and the expenditure resulting
from it to Party A within 5 days upon the occurrence of the above situation. The
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representative of Party A shall recognize and give reply within 7 days upon
receiving of the report. Party B shall assume that the demand of postponement
has been recognized if Party A shall not give reply within the period.
Apart from the above reasons, Party B shall bear the responsibility of breach of
contract if the construction cannot be completed according to the date
stipulated in the Contract.
Article 15 Re-examination
Party B shall carry out the construction rigidly conforming to the standard,
specification and design demand and the instruction given by the representative
of Party A as stipulated in the Contract. The construction shall be checked and
examined by the representative and appointees of Party A and Party B shall
provide convenient conditions for the checking and examination, re-do the work
and make alterations as required by the representative and appointees of Party
A. Party B shall also bear expenses on re-doing or making alterations resulting
from its own reason.
Having passed the above checking and examination, in case there is a quality
problem again caused by Party B, Party B shall bear the responsibility and the
expenses arisen and compensate Party A for related loss it sustained, and the
construction period shall be postponed.
The above checking and examination shall not affect the normal operation of the
construction, if so, the expenses arisen shall be borne by Party B in case the
examination is not passed.
Article 16 Standard of the Project Quality
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The project quality shall meet the qualified standard of the national or
professional quality examination standard.
Should any section of the construction not conforming to the required conditions
is found, the representative of Party A shall ask Party B to re-do the work.
Party B shall re-do the work according to the schedule provided by Party A until
the stipulated condition has been complied with. Party B shall bear the
responsibility if it is Party B's own reason for not achieving the stipulated
condition.
In case there is a dispute over the quality of the construction, the relevant
quality supervision authority, as stipulated in this Contract, shall be invited
to arbitrate the dispute. The arbitration expense and the loss arisen shall be
borne by the loser.
Article 17 Hidden Construction and Intermediate Examination Before Acceptance
In case the project possesses the covering, concealable conditions or needs an
intermediate examination before acceptance as stipulated in the contract, Party
B shall invite the representative of Party A to join 48 hours prior to the
self-inspected qualified hidden project and intermediate examination before
acceptance by notice. The content of the notice shall include the prepared
examination record before acceptance, contents of hidden project and
intermediate examination before acceptance, time and location for the
examination. Party B shall prepare the examination record before acceptance.
Having passed the check, Party B shall carry out the hidden project and continue
the construction only after a signature made by the representative of Party A on
the record of the examination. In case the check has been failed, a
re-examination before acceptance shall be conducted after the alterations within
a designated period of time.
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In case Party A does not sign on the examination record before acceptance 48
hours upon receiving the examination result that the construction quality
conforms to the required specification and requirement, it shall mean that Party
B has been approved to carry out the hidden construction duty or continue the
construction .
Article 18 When all the construction completed basically and satisfactorily
passed all the completion examination stipulated in the Contract, Party B shall
inform Party A in writing, together with a written guarantee to ensure the
completion of the incomplete work on schedule during the defective liability
period.
Article 19 Examination and re-examination before acceptance: In case the
representative of Party A shall not examine before acceptance on schedule, a
demand for postponement (not more than 2 days) shall be proposed to Party B in
48 hours before the commencement of examination. In case the representative of
Party A fails to propose a demand of postponement within the above period of
time and fails to join the examination process, Party B shall organize to
conduct an examination by itself and Party A shall admit the record of
examination.
Whether the representative of Party A joins the examination or not, when the
demand for re-examination of its hidden construction is proposed, Party B shall
analyze as required and re-cover or repair after the examination. If the
examination has been passed, Party A shall bear the expenditure arisen and
compensate Party B for the loss and the construction shall be postponed
accordingly. If the examination has not been passed, Party B shall bear the
expenditure and the construction shall not be postponed.
Article 20 The cost stipulated in the Contract shall not be changed by any party
of its own.
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Article 21 Construction Cost in Advance
Party A shall pay the construction cost in advance to Party B according to the
time and amount stipulated in the contract. In case Party A fails to pay the
advance payment, Party B shall issue a payment notice to Party A 10 days upon
the designated period of payment. In case Party A fails to pay the advance
payment as required upon receiving the notice, Party B shall suspend the
construction 5 days after the issuance of the notice. Party A shall deposit
Party B with interest of the payable amount calculating from the payable date
and bear the responsibility of breach of contract.
Article 22 Verification and Recognition of Work Load
Party B shall submit a report to the representative of Party A concerning the
completed construction at the time stipulated in the contract. Party A shall,
within 7 days upon receiving the report, verify the completed construction
(hereinafter "calculation of work load) with reference to the blueprints and
inform Party B 24 hours prior to the calculation. Party B shall provide
convenient conditions and send somebody to join the calculation. There is no
reason for Party B not joining the calculation, in case Party A conduct the
calculation of its own, the result of calculation, used as the basis for the
payment of the project cost, shall be regarded as effective. The representative
of Party A shall conduct the calculation within 7 days upon receiving the
report. The work load listed in the report shall be recognized as the basis of
the payment for the project cost from the 8th day upon receiving the report. In
case the representative of Party A fails to inform Party B within the designated
time and Party B cannot join the calculation, the result of calculation shall be
regarded as ineffective.
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The representative of Party A shall not conduct a calculation on the work load
increased by Party B, which exceeds the requirement of the blueprints, and the
work load of re-doing caused by its own reason.
Article 23 Payment of the Construction Cost
According to the stipulated time and method in the contract and the work load
recognized by the representative of Party A, Party A shall pay the construction
cost calculating in accordance with the unit price of the relevant items
constituting the cost of the contract and the calculation of expense standard.
In case Party A fails to pay within 10 days upon the signing by its
representative, Party B shall issue a payment notice to Party A. If Party A does
not pay after receiving the payment notice from Party B, Party B shall suspend
the construction work 5 days after the issuance of the notice and Party A shall
bear the liability of breach of contract.
Party A shall postpone the payment of the construction cost after the consent
and signing of an agreement made with Party B. The date of payment and the
interest rate of payable construction cost (from the 11th day after the signing
of an calculation of work load by Party A) shall be stated clearly in the
contract.
Article 24 Party A shall not supply the material and equipment which shall be
purchased by Party B.
Article 25 Material and Equipment Purchased by Party B
According to the provision stipulated in the contract, Party B shall purchase
the material and equipment required for the construction in accordance with the
design and specification requirement, and provide corresponding product
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qualification certificates. For the products that do not accord with the design
or standard, Party B shall transport them out from the construction site as
required by the representative of Party A and re-purchase qualified products.
The expense shall be borne by Party B and the construction shall not be
postponed.
Article 26 Change of Design
Party B shall change the original design with the consent of the representative
of Party A.
Article 27 Under this Contract, Party B is the contractor, neither Party A, B
nor C shall change the cost in this Contract of its own.
Article 28 Examination After Completion of Construction
Project should be completed with examination standard. Party B shall provide
Party A with a full set of information and the examination report of
construction completed in accordance with the related rules of China. Party B
shall submit a sketch map of completion to Party A with number of copies and on
the date stipulated in the contract. Having received the examination report from
Party B, Party A shall employ a qualified body to conduct examination within the
time stipulated in the contract and approve or propose suggestions within 5 days
upon the examination. Party B shall made alterations as required and bear the
expense caused by its own reason.
Having received the examination report from Party B, Party A shall organize the
examination within 10 days thereafter. In case Party A fails to organize the
examination or to approve or propose any suggestions within 5 days upon
receiving the examination report, such examination report shall be regarded as
approved and a clearance procedure shall be proceeded at once.
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The date of completion shall be the date of submitting the examination report by
Party B. In case an alteration shall be made so as to achieve the requirement
for completion, such date of completion shall be the date when Party B, after
its alterations, asks for the examination by Party A.
For special reason, in case there are certain specific construction and certain
completed construction required for examination, a completion agreement to
clarify the respective responsibilities shall be concluded by both parties.
Article 29 Clearance after Completion of Construction
After the approval of the examination report after the construction completed,
Party B shall submit a clearance report to the representative of Party A and
handle the clearance procedure after the completion according to the related
rules of China and the stipulated time and form in the contract.
In the event that Party A approved the examination report, the clearance
procedure shall be proceeded within 30 days. Starting from the 31st day, Party A
shall pay the interest of the related bank loan originally owed by Party B if
the clearance procedure has not been proceeded without any appropriate reason
except for the delay of clearance is agreed with the written consent by both
parties.
Article 30 Maintenance and Repairs Services
The maintenance and repairs period shall be one year according to the rules of
the State and the stipulation in the contract. The deposit of maintenance and
repairs accounts for 5% of the total construction cost.
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The maintenance and repairs period commences from the date that the
representative of Party A signs on a final examination record before acceptance
of work.
During the maintenance and repairs period, Party B shall send somebody to make
repairs within 10 days upon receiving the repairing notice, if not, Party A
shall appoint other units or officers to make repair. Party A shall deduct all
the expense on repairs by the own reason of Party B from the maintenance
deposit. Party B shall pay for the insufficient amount.
Party A shall pay off the accounts of maintenance deposit retained for the
project within 20 days upon the expiration of the maintenance and repairs
period, the remaining amount of maintenance deposit and its interest (according
to the interest rate stipulated in the contract) shall be returned to Party B,
the insufficient amount shall be paid by Party B.
During the period that the road is opened for public use, the expense for any
maintenance caused by the construction quality or the problem of material and
other compartments shall be borne by Party B.
Article 31 Settlement of Disputes
Any disputes arising from the execution of, or in connection with the contract
shall be settled through friendly consultations between the three parties. In
case no settlement can be reached through consultations, the disputes shall be
submitted to the Shenzhen Branch of China International Economy and Trade
Arbitration Commission for arbitration in accordance with its rules of
procedure. The arbitral award is final and binding upon both parties. Any
expense occurred from the arbitration shall be borne by the loser.
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During the arbitration, the contract shall be executed continuously except for
matters in disputes.
Upon the occurrence of disputes, the contract shall be executed continuously by
both parties to maintain the continuity of the construction and safeguard the
completed section of the project, except for the followings:
(1) the contract shall not be continuously executed;
(2) suspension of construction agreed by both parties;
(3) require to suspend by mediation and is accepted by both parties;
(4) require to suspend construction made by the arbitral authority.
Article 32 Breach of Contract
In case of inability to provide the necessary instruction, confirmation,
approval, perform its duties and pay the amount according to the stipulation of
the Contract and performing something resulting in incapability to execute the
contract, the representative of Party A shall bear the responsibility of breach
of contract (including the payment of the additional expense of Party B caused
by its breach of contract and the interest of payable amount starting from the
date of payment) and the construction shall be postponed accordingly. The
representative of Party A shall also pay the amount of breach of contract
stipulated in the contract and compensate Party B for the holdup in the work
owing to its breach of contract.
In case Party B fails to complete the construction or the quality of
construction cannot meet the requirements of design and standard or any behavior
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that leads to the failure of execution of the contract, the representative of
Party A shall inform Party B and compensate Party B, according the amount of
breach of contract stipulated in the contract, for the loss caused by breach of
contract.
In case the contract shall not be executed when one party breaches it, the
breaching party shall bear the above responsibility of breach of contract and
the contract shall be executed continuously unless both parties agree to
terminate it.
In case the contract shall not be executed when one party breaches it, the other
party shall terminate or discharge the contract by informing the breaching party
10 days in advance. The liability for breach of contract shall be borne by the
breaching party.
Article 33 Compensation
Should any party (hereinafter "the breaching party") fail to (1)pay for the
expenses; or (2)conform to the standard on the quality of the project; or
(3)fulfill the contract due to the occurrence of certain events postpones the
construction period, the breaching party shall compensate the abided party. The
abided party is entitled to seek for compensation in accordance with the
following stipulations.
1. There are appropriate reason(s) for compensation and relevant evidences of
which the event is claimed.
2. The abided party shall issue a notice of compensation to the breaching party
within 20 days after the occurrence of the event.
3. The breaching party shall either give an approval to the compensation or
shall request the abided party to give further reasons for compensation and
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evidences within 10 days after receiving the notice of compensation. Should
the breaching party do not give its reply within 10 days, it is assumed that
the compensation has been approved.
Article 34
Should party B fail to complete the road section stipulated in the contract by
using the total contracted expenses (including all expenses), party B and party
C shall be liable for this mistake. In case the completion date of the project
is then postponed, party B and Party C shall be liable for this and compensate
the Party A for the economic loss in accordance with the actual situation.
Article 35 Safety measures
Pursuant to relevant stipulations, party B shall adopt strict safety preventive
measures and be liable for any responsibilities of accidents due to insufficient
safety measures and any expenses arisen. In case the accidents are not caused by
party B, the party bearing the responsibilities shall pay for the expenses
arisen.
In case there are any serious accidents happened, party B shall immediately
inform the concerned department and the representatives of party A. In the
meantime, party B shall manage the event in accordance with the stipulations of
relevant official ministry.
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Article 36 The underground barriers and historical relics
In the process of construction, should party B discover historical relics,
ancient graves, fossils, coins or other things which have archaeology and
geology research values or underground barriers which affect the construction,
party B shall inform the representatives of party A within 4 hours, the
concerned management department and take effective protective measures. Within
48 hours after party A has received the notice, party A shall either give its
approval to the measures taken or give its opinions. Party B and party C shall
be liable to the expenses of the protective measures. Construction period is
then delayed accordingly.
Article 37 Project sub-contracted
Party B can contract out part of the projects in accordance with a tender and
conditions stipulated.
After party B has signed sub-contract agreements with sub-contractors, a copy of
the agreement should be given to the representatives of party A. In case there
are any discrepancies between the sub-contract agreements and this contract,
this contract shall prevail.
The sub-contract cannot lift any obligations and rights of party B and party C.
Party B should assign management staff to station in the construction site where
the contracted project is carried out and ensure that the contract can be
fulfilled. In case the sub-contractor breaches the contract or is negligent, it
is assumed that party B beaches the contract or is negligent.
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Except as otherwise provided in the contract, party B and sub-contractors shall
be liable for the expenses of contracted projects.
Article 38 Force majeures
Party B shall take immediate measures, minimize losses as much as possible, and
inform the representatives of party A about the losses within 24 hours after
force majeures. Party B shall also inform party A about the expenses of clearing
and renovation according to the time stipulated in the contract. If calamity
continues, party B shall report party A the situation of the calamity for every
10 days until the end of the calamity. Party A shall provide necessary
assistance
The expenses arisen from calamity should be afforded by both parties:
1. Party B and party C shall be liable for any losses of the projects.
2. Subordinate units shall be liable for any casualties and shall afford
relevant expenses.
3. Party B and party C shall be liable for any losses and damages of party B's
facilities and equipment and the losses of work being suspended.
4. Party B and party C shall be liable for any responsibilities and expenses
of the renovation work.
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Article 39 Insurance
Pursuant to the conditions stipulated in the contract, party B shall insure the
life and property insurance of the construction projects, construction sites,
the staff of party A and the third parties and shall be liable to the expenses.
Party B shall purchase insurance for its staff on construction sites and
machines and shall pay for all these expenses.
After the insurance policy is taken out, if any losses happened, party B shall
submit party A a report about the situation of losses and appraised price. In
case the losses continue, party B shall report party A in every 10 days after 15
days of the occurrence of the losses until the end of the losses.
Article 40 Project suspended or deferred
Any suspension and deferment of projects due to the alteration of policy, force
majeures, and reasons irrelevant to Party A and Party B cause the contract
impossible to fulfill, party B shall properly manage the completed projects and
material brought, protect the facilities well and prepare for the hand-over
work. In accordance with the demand of party A, Party B shall withdraw all its
machines, facilities and staff from the construction site. Party C shall provide
party B with necessary assistance and pay for the above economic expenses. In
addition, party C shall pay for the project expenses and compensate party A and
party B for any relevant losses in accordance with the stipulations in the
contract. The party who orders the remaining material and equipment shall return
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them to the seller. In case there are any payments for these goods which cannot
be refunded and expenses arising from the return of these goods, party B and
party C shall be liable for these expenses. In case the goods cannot be returned
in time, the responsible party on this matter should be liable for the losses.
Article 41 The effectiveness and termination of the contract
This contract will be effective in accordance with the stipulations in the
contract. When the project is completed, party A has paid for all expenses and
party B has handed over the project, all conditions other than the protective
and maintenance conditions will be terminated. When the maintenance period is
over, all protective and maintenance conditions will be terminated.
Article 42
This contract has three original copies which all have the same binding effects.
Each party (A, B & C) will keep a copy which is signed and stamped by all the
three parties. Duplicate copies will be made to relevant department as required.
This contract is signed on ________________________ in Huizhou, Guangdong
Province.
Party A : Huizhou Guanghui Highway Development Co. Ltd.
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Authorized representative:
Stamp:
Party B: Huizhou Highway Property Development Co. Ltd.
Authorized representative:
Stamp:
Party C: Huizhou Highway Bureau
Authorized representative:
Stamp:
23
REGULAR EXPENSES TURN-KEY CONTRACT
This contract is concluded and signed by the following two parties on 30th day
of October, 1996 at Huizhou, Guangdong province, China.
Party A : Huizhou Highway Property Development Company
Party B : Huizhou Guanghui Highway Development Company
WHEREAS Huizhou Highway Property Development Co. Ltd.(hereinafter "Party
A") and Guanghui Highway Project Co. Ltd. signed "Regarding the establishment of
Guanghui Highway Development Co Ltd. Agreement(hereinafter "Cooperation
Agreement") on the 5th of August, 1996 and Huizhou Guanghui Highway Development
Co. Ltd. (hereinafter "Party B") has been established in Huizhou, Guangdong
province accordingly.
WHEREAS Party A has abundant experience in the operation and management of
highway NOW THEREFORE, in consideration of the foregoing, the parties hereto
covenant and agree as follows
1. DEFINITIONS
1.1 The road section of the first phase investment: Guangdong Huizhou
Jinlong Highway section starts from Longmen Baishashui Bridge to
Gongzhuang through Pingling with the total length 35km.
1.2 Regular Expenses: Regular expenses refer to the regular operation
expenses of the road section of the first phase investment (including
the expenses of road maintenance and damage renovation, management
fee, wages, enterprise development fund, staff incentive fund, welfare
fund, minor renovation, medium renovation , large renovation and so
on.)
1.3 Minor renovation: Minor renovations refer to the projects including
preventive maintenance and the renovation of minor damaged parts of
the highway and all the other engineering facilities.
1.4 Medium renovation: Medium renovations refer to small projects
including regular renovation and reinforcement renovation of the
general wear and partial damage of the engineering facilities of the
highway in order to restore its original state.
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1.5 Large renovation: Large renovations refer to the projects including
periodic comprehensive renovation on those relatively large damages of
the highway facilities or partial improvement within the specification
of the original technical grade and individual extension in order to
raise the traffic capacity gradually. It is necessary to carry out the
work in accordance with an approved annual plan and project budget.
2. REGULAR EXPENSES TURN-KEY ARRANGEMENT AND DURATION
2.1 Party A agrees and accepts the trust given by Party B to assist in the
management and operations of the road section of the first phase
investment. This form of trust does not include Party A's any
operation management authority conferred by Party B. Party A also
accepts and agrees Party B to pay Party A 15% of the total revenue
received from the road section of the first phase investment as the
turn-key expense to pay for the regular expenses of every year. If
there is any surplus, the surplus shall go to the Party A. However, if
there is any deficit, the Party A will make up the shortfall.
2.2 This contract lasts for seventeen years, starting from the date of
incorporation of cooperative company (Party B). From the eighteenth to
the thirtieth year, the turn-key arrangement shall be decided after a
consultation between the Party A and B.
3. THE RESPONSIBILITIES, OBLIGATIONS AND RIGHTS OF THE PARTIES
Party A's responsibilities, obligations and rights
--------------------------------------------------
3.1 After Party A received the turn-key expenses specified in this
contract and compensated the actual regular expenses, any surplus
should go to the Party A. In case there is any shortfall, Party A then
is responsible for this and raises the shortfall on its own.
3.2 Party A shall organize and manage the toll booth in Pingling and any
other toll booths agreed by both parties.
3.3 Party A should do the necessary maintenance work and minor renovations
in accordance with the relevant stipulations of the state for the road
section of the first phase investment and any toll booths agreed by
both parties. Party A shall be liable for the relevant expenses.
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3.4 Party A shall be responsible for the medium and large renovations and
shall pay for the expenses within the cooperation period from the
first year to the seventeenth year.
3.5 Party A should be responsible for the medium and large renovations of
the road section of the first phase investment and can only start to
do these renovations after obtaining Party B's written consent.
Regarding the expenses as well as the starting time of these
renovations, after Party A gives its opinion, and the two parties
shall negotiate according to the situation at that moment.
3.6 To keep accounting reports and records of earnings and expenses
related to the road section of the first phase investment.
3.7 During the effective period of this contract, Party A should be liable
for any expenses incurred due to project or property losses and
injuries arising from the performance of this contract.
3.8 Party A should, on behalf of Party B, pay for all necessary tax
payments in accordance with the stipulations of the state on schedule
and the tax payments are payable by party B.
3.9 Party A shall fully perform all its obligations and responsibilities
stipulated in this contract.
Party B's responsibilities, obligations and rights
--------------------------------------------------
3.10 Party B agrees Party A to advance15% of the total revenue each month
as regular expenses. Party B should pay off the operation expenses
stipulated in the contract within five working days as of the 31st
March, 30th June, 30th September and 31st December every year
3.11 Party B should supervise Party A in executing its responsibilities,
obligations of this contract and all matters related to a medium and
large renovation.
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3.12 Party B should check Party A all financial and accounting records
related to the first phase of investment.
3.13 Party B shall fully perform all its obligations and responsibilities
stipulated in this contract.
4. Both parties shall perform the responsibilities and obligations stipulated
in this contract. Any party who breaches the contract shall be liable for
all or partial responsibilities.
5. Alteration, termination and rescindment of the contract
5.1 When this contract comes into effect, it is binding. Both parties must
not alter and rescind the contract at will. In case the contract be
needed to be altered and rescinded, unanimous agreement must be
obtained from both parties and new written agreement must be reached.
5.2 During the effective period of this contract, if there are any changes
of the state policies or law and so causes any one of the parties'
interest being largely affected, the aggrieved party can request
amendment or rescindment of the contract. However, any changes of the
contract must be agreed by both parties after consultation.
4
January 13, 1997
Securities and Exchange Commission
450 Fifth Street, NW
Washington, D.C. 20549
Re: Infrastructure International, Inc. (formerly, React Systems, Inc.)
Gentlemen:
We have read Item 4(a) of Infrastructure International, Inc. (formerly,
React Systems, Inc.) dated December 1, 1996 as filed with the Securities and
Exchange Commission. We are in agreement with all statements contained therein.
Very truly yours,
/s/ Mantyla, McReynolds & Associates
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Mantyla, McReynolds & Associates
